■*HERE  can  he  no 

Kope  of  progress  or 

freedom  for    tKe 

ale  witKout  the  un- 

licted  and  complete 

tyment  of  the  right 

•ee  speech,  free  press 

peaceful  assembly. 

Gift  of 
RA  B.  CROSS 


GIFT   OF 


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AMERICAN  CITIZENSHIP  AND 
ECONOMIC  WELFARE 


J.    H.    FURST    COMPANI,    PRINTERS, 
BiLTIMORE. 


AMERICAN  CITIZENSHIP 

AND 

ECONOMIC  WELFARE 


THE  WEIL  LECTURES,  1919, 
DELIVERED  AT  THE  UNIVER- 
SITY    OF     NORTH     OAROL^^l^A. 


BY 


JACOB  H.  HOLLANDEE,  Ph.  D. 

PBOFBSSOB  OF  POLITICAL  ECONOMY  IN  THE  JOHNS  HOPKINS 
UNIVKESITY 


Baltimobe 

The  Johns  Hopkins  Press 

1919 


f40/6^ 


•  *•.•# 


COPYBIGHTBD,  1919,  BY  THE  JOHNS  HOPKIMS  PRESS 


^H' 


TO  THE  LONG  SUCCESSION 

OF 
TEACHERS    AND    STUDENTS 

WHO    FOR    MANY    YEARS    BY    VISIT    AND    RESIDENCE 
HAVE  MAINTAINED  AT  BALTIMORE  AND  CHAPEL  HILL 

THE   BEST  TRADITIONS 

OP 

ACADEMIC  INTERCHANGE 


^47122 


CONTENTS 


PAGE 


I    The  Weal  of  the  Nation     ...  1 

II    The  Laborer's  Hire 41 

III    The  Sinews  of  Peace     ....  81 

Notes 115 


THE  WEAL  OF  THE  NATION 


AMERICAN  CITIZENSHIP  AND 
ECONOMIC  WELFARE 


THE  WEAL  OF  THE  NATION 

In  the  **  Memorials  of  his  Time  ''  Lord 
Cockburn  tells  us  that  when  in  the  winter 
of  1800  Dugald  Stewart,  the  biographer  of 
Adam  Smith  and  the  titular  successor  of 
Adam  Ferguson  in  the  Chair  of  Moral 
Philosophy  in  the  University  of  Edin- 
burgh, delivered  his  first  separate  course 
of  lectures  in  Political  Economy,  the  early 
reaction  of  the  public  mind  was  a  sense 
of  impropriety:  **  It  was  not  unusual  to 
see  a  smile  on  the  faces  of  some,  when 
they  heard  subjects  discoursed  upon  seem- 
ingly beneath  the  dignity  of  the  Academical 
Chair.  The  word  corn  sounded  strangely 
in  the  Moral  Class,  and  drawbacks  seemed 
a  profanation  of  Stewart's  voice."  ^ 


2'    ''        ^   '   llftEEiCAN  CITIZENSHIP 

'  '  In  other  times,  the  attempt  of  a  political 
economist  to  give  counsel  in  the  matter  of 
American  Citizenship,  under  the  auspices 
of  a  foundation  finely  conceived  and  not- 
ably maintained,  might  invite  like  experi- 
ence. Civic  idealism,  political  integrity, 
unselfish  public  service — these  are  the  ab- 
stractions proper  to  the  ofl&ce,  not  affairs 
of  dollars  and  cents,  even  though  pre- 
sented in  the  spiritualized  garb  of  econo- 
mic productivity,  industrial  peace  and 
fiscal  justice. 

O  Trade!    O  Trade!  would  thou  wert  dead! 
The  Time  needs  heart — 'tis  tired  of  head :  * 

It  would  be  sheerest  aifectation  to  ven- 
ture such  apology  in  the  present  juncture 
of  our  country  *s  life.  In  baldest  terms, 
the  world  has  suffered  a  supreme  cata- 
clysm. The  United  States  has  been  in- 
volved in  this  convulsion — ^by  the  pres- 
sure of  direct  interest  as  by  the  links  of 
world  solidarity.  The  first  acute  phase 
over,  we  face  the  reckonings  of  adjustment 
and  the  penalties  of  aftermath. 


AND  ECONOMIC  WELFARE  3 

The  issues  at  stake  are  nothing  less  than  ^ 

the  continued  possession  and  future  en- 
largement of  those  satisfactions  and  op- 
portunities which  democratic  institutions, 
bountiful  nature  and  a  resourceful  popu- 
lation have  permitted  us  heretofore  to 
enjoy.  We  have  seen  the  unexpected  with- 
drawal from  accustomed  economic  life  of 
millions  of  producers,  and  their  equally 
unexpected  return.  We  have  suffered  the 
diversion  of  industrial  capital  from  peace 
production  to  war  requirement,  and  an 
abrupt  reversal  of  the  process.  We  have 
imposed  great  burdens  of  taxation;  we 
have  incurred  huge  volumes  of  debt;  we 
have  expanded  our  circulating  medium ;  we 
have  inflated  our  banking  credit. 

Business  has  been  subject  to  feverish 
stimulations  and  industrial  intensities. 
War  brides  have  conferred  the  beatitudes 
of  excess  profits  upon  enterprisers,  and  of 
over-time  payments  upon  wage-earners. 
The  laboring  world  has  tasted  the  pleas- 
antnesses of  larger  expenditure  and  has 


4  AMERICAN  CITIZENSHIP 

glimpsed  vistas  of  ampler  income.  Spirits 
of  unrest  have  been  loosed  in  remote  parts 
of  the  world,  and  the  swift  contagion  of 
industrial  radicalism  has  threatened  estab- 
lished canons  of  economic  relativity  and 
social  development.  In  a  word,  the  econo- 
mic structure  has  been  shaken  to  its  base, 
and  the  world  stands  hesitant  and  anxious 
as  to  whether  the  subsiding  tremor  is  the 
prelude  to  renewed  convulsion  or  to  re- 
turning stability. 

These  are  the  days  in  which  earnest  men 
— young  men — ask  for  rules  of  conduct. 
The  modes  of  right  living  and  the  ideals 
of  civic  obligation  are  at  all  times  inter- 
twined with  the  standards  of  economic 
duty.  There  is  a  fine  sanity  in  the  tradi- 
tional scope  of  Moral  Philosophy  exem- 
plified in  the  teaching  of  Adam  Smith 
himself,  as  dealing  in  turn  with  Ethics, 
Politics  and  Economics — man's  relation  to 
God,  to  the  state  and  to  his  associates.^ 
But  the  accent  of  wise  teaching  is  not  al- 
ways uniform.    In  times  past  men  groped, 


AND  ECONOMIC  WELFARE  5 

now  for  ethical  counsel,  now  for  political 
precept ;  in  our  own  day  the  imperious  call 
is  for  economic  guidance. 

May  I  add  that  this  is  pre-eminently  true 
of  the  young  men  of  the  South.  In  econo- 
mic affairs,  your  problems  are  greater, 
your  opportunities  are  larger,  your  re- 
sponsibilities are  more  immediate.  Barely 
emerged  from  the  shadow  of  a  great  eco- 
nomic  change,  the  course  of  economic  di- 
versification still  in  early  stage,  a  land  and 
a  people  whose  powers  have  not  been  im- 
agined— you  face  tremendous  potentiali- 
ties awaiting  the  touch  of  leadership  and 
knowledge  to  spring  into  force. 

Urgent  as  is  the  summons  for  positive 
action  rather  than  for  sentimental  appeal, 
let  us  forego  the  hope  of  economic  necro- 
mancy. Sir  William  Osier  has  spoken  of 
the  desire  to  take  medicine — in  particular, 
bitter  tasting  medicine,  he  might  have 
added — as  a  deep-rooted  infirmity  of  the 
human  species.^  A  like  obsession  of  the 
popular  mind  is  that  economic  philosophy 


6  AMERICAN  CITIZENSHIP 

and  its  devotees,  properly  encouraged,  may 
be  relied  upon  to  produce  a  curative  white 
rabbit  from  a  professional  silk  hat.  This 
expectancy  even  penetrates  into  higher 
places.  Henry  Adams  records  how  **  he 
plunged  deep  into  statistics  ''  and  how 
**  Nothing  came  out  as  it  should.''  **  One 
revelled  at  will  in  the  ruin  of  every  society 
in  the  past,  and  rejoiced  in  proving  the 
prospective  overthrow  of  every  society  that 
seemed  possible  in  the  future;  but  mean- 
while these  societies  which  violated  every 
law,  moral,  arithmetical,  and  economical, 
not  only  propagated  each  other,  but  pro- 
duced also  fresh  complexities  mth  every 
propagation  and  developed  mass  with 
every  complexity. ' '  ^ 

There  is,  alas!  no  prospect  of  trade  se- 
crets to  be  imparted,  or  ready-to-use  cure- 
alls  to  be  dispensed.  The  stock  in  trade 
of  the  economist  is  not  a  bag  of  tricks,  but 
only  a  mental  habit  built  of  the  stuff  of 
which  common  sense  is  made — orderly 
thinking,  acquaintance  with  a  wider  range 


AND  ECONOMIC  WELFARE  7 

of  related  facts  in  balance  of  intimacy  with 
local  minutiae,  some  historical  equipment 
and  a  profound  sense  of  the  organic  inter- 
dependence of  the  business  world. 

It  is  in  something  of  this  spirit,  in  ful- 
fillment of  the  academic  office  with  which 
you  have  so  greatly  honored  me,  that  I 
shall  venture  to  examine  the  present  duty 
of  the  American  citizen  in  securing  and 
enlarging  the  economic  well-being  of  the 
nation.  That  duty  is  indeed  manifold. 
But  out  of  its  wide  range  three  conspicu- 
ous obligations  loom  forth:  participation 
in  economic  production,  the  relation  of 
employer  and  employee,  and  equitable  con- 
tribution to  the  support  of  the  state.  In 
the  successive  meetings  which  I  am  to  have 
with  you,  I  hope  to  consider-  in  turn  the 
citizen  as  producer,  as  employer  and  as 
taxpayer — each  in  relation  to  present  con- 
ditions and  with  respect  to  individual 
obligations. 

Like  an  earlier  economist,  John  Craig, 
writing  a  century  ago  at  the  close  of  an- 


8  AMERICAN  CITIZENSHIP 

other  world-war,  in  troubled  wonderment 
tliat  Peace  instead  of  assuming  *^  her 
genuine  character  of  parent  of  industry 
and  nurse  of  commerce  '^  appeared  as  **  a 
demon  of  destruction/'  I  can  only  plead: 
**  In  what  I  have  to  oifer  on  this  difficult 
and  important  subject,  I  am  not  aware 
that  I  shall  bring  forward  any  view  that 
will  have  novelty  to  recommend  it,  far  less 
any  specific  nostrum  from  which  a  speedy 
recovery  may  be  anticipated ;  though  I  hope 
to  correct  some  misapprehensions  that 
have  prevailed,  and  shall  endeavor  to  com- 
bine whatever  in  the  several  theories  seems 
to  be  founded  in  truth. ' '  ^ 

A  careful  historian  of  economic  thought 
has  pointed  out  that  the  concept  of  national 
wealth  as  an  annual  fund  rather  than  as 
an  accumulated  stock  marks  the  transi- 
tion from  older  economic  philosophizing 
to  modern  economic  opinion.'^  Influenced 
by  the  physiocratic  doctrine  of  an  annual 
*  *  reproduction, ' '  Adam  Smith  insisted  that 


AND  ECONOMIC  WELFARE  9 

it  is  the  annual  industry  of  the  nation 
^^  which  originally  supplies  it  with  all  the 
necessaries  and  conveniences  of  life  which 
it  annually  consumes/'  A  century  and  a 
half  of  economic  thinking  has  made  no 
change  in  this  simple  axiom,  and  the  home- 
ly phrasing  that  according  as  this  annual 
produce  *^  bears  a  greater  or  smaller  pro- 
portion to  the  number  of  those  who  are  to 
consume  it,  the  nation  will  be  better  or 
worse  supplied  with  all  the  necessaries 
and  conveniences  for  which  it  has  occa- 
sion * '  ^ — gives  a  proper  starting  point  for 
our  inquiry. 

There  is  no  need  of  harking  back  to  that 
naive  Crusoe  philosophy — peopled  with 
primitive  fisherman  and  thrifty  sluice 
builders  to  which  economists  become  meta- 
physicians,^ or  men  of  affairs  turned  soci- 
ologists^^ are  fond  of  reverting  and  at 
which  a  keen  mind  has  jeered  so  genially 
as  **  conjectural  history'' — to  see  that 
the  first  summons  is  upon  Father  "Work 
and  Mother  Earth.^^     The  wastages  and 


10  AMERICAN  CITIZENSHIP 

losses  of  the  war  years  have  been  of  goods 
and  services  begotten  of  the  soil  and  its 
contents  by  the  *  ^  skill,  dexterity  and  judg- 
ment "  ^2  of  our  man  power,  applied  under 
gifted  leadership  with  the  aid  of  ingenious 
devices.  Only  by  the  same  methods  can 
the  gap  be  repaired  and  the  larger  divi- 
dend— if  there  is  to  be  one — supplied. 
There  is  neither  short  cut  nor  royal  road. 
Emerson  bewailed  that  Political  Economy 
was  not  reducible  to  lyrical  form,^^  but  no 
lilting  verse  would  change  its  work-a-day 
burden. 

Both  as  to  Labor  and  as  to  Land  the 
United  States  has  suffered  far  less  than 
any  of  the  great  belligerents.  Our  man 
power  has  not  been  decimated  and  our  soil 
has  not  been  laid  waste.  During  the  period 
of  hostilities,  our  productive  force  in  re- 
lation to  national  well-being  may  be  re- 
garded as  reduced  to  the  extent  that  work- 
ers were  withdrawn  from  industry  for 
military  service  or  for  the  production  of 
war  supplies — uncompensated  by  increased 


AND  ECONOMIC  WELFARE  11 

effort,  lessened  unemployment  or  dimin- 
ished consumption.  Of  our  estimated 
total  population  of  some  100,000,000,  pro- 
ductive labor — represented  by  the  number 
of  men,  women  and  young  persons  engaged 
in  gainful  occupations — is  roughly  40,000,- 
000.1^  Of  this  total  there  were  called  to 
the  colors  during  the  period  of  belligerency 
some  4,800,000  and  there  were  absorbed  in 
specialized  war  industries  another  8,000,- 
000.^^  As  against  this  aggregate  diversion 
of  12,800,000  there  was  increase  of  labor 
power — primarily  in  the  war  industries 
but  to  some  extent  in  the  general  field — 
due  to  speeding  up  effort,  overtime  work 
and  virtual  conscription  of  the  idle,  the 
leisured  and  the  parasitic.  No  quantita- 
tive data  are  here  available  and  we  must 
venture  an  intelligent  guess  rather  than 
attempt  a  formal  estimate.  If  we  assume 
a  compensating  influence  from  these  quar- 
ters of  25  per  cent.,  it  would  follow  that 
during  the  war  period  our  annual  peace- 
time production  was  impaired  on  the  score 


12  AMERICAN  CITIZENSHIP 

of  labor  power  by  the  withdrawal  of  some 
9,500,000  workers. 

Since  the  signing  of  the  armistice,  the 
process  of  demobilization — ^military,  naval 
and  industrial — has  gone  on  swiftly.  On 
May  1,  1919,  there  still  remained  in  the 
military  and  naval  services  over  2,000,000 
men  and  in  war  industry  perhaps  some 
250,000.  Taking  into  account  a  gross  toll, 
direct  and  indirect  of  250,000  war  casual- 
ties, it  is  likely  that  the  available  labor 
force  of  the  nation  was  at  that  time  about 
2,500,000  less  than  at  the  outbreak  of 
hostilities  with  tendency  towards  further 
rapid  reduction  of  the  differential.  By 
October  1,  1919,  this  number  had  declined 
to  approximately  500,000. 

If  we  turn  to  the  earth  and  its  treasures 
— agriculture  and  extractive  industry — 
the  exhibit  is  likewise  less  depressing  than 
might  be  supposed.  Our  soil  has  not  been 
laid  waste,  our  mines  have  not  been  gutted, 
our  forests  have  not  been  fire-swept.  On 
the  contrary,  production  has  gone  forward 


AND  ECX>NOMIC  WELFARE  13 

with  tremendous  pace  and  the  war-time 
output  of  fields  and  mines  has  reached 
fairly  staggering  proportions.  It  is  likely 
there  has  been  some  cropping  with  neglect 
of  upkeep  in  the  form  of  fertilizing  and 
rotation,  and  some  over-exploitation  with 
prodigal  disregard  of  future  development. 
But  on  the  other  hand  there  has  been  a 
great  extension  of  cultivated  areas,  an  in- 
tensive development  of  theretofore  un- 
profitable uses  and  a  productive  working  of 
undeveloped  deposits.  In  the  sense  in 
which  agronomists  and  geologists  place 
ultimate  limit  upon  the  earth's  resources, 
we  are  definitely  the  poorer  for  every 
bushel  of  food  material  and  every  ton  of 
mineral  wealth  taken  from  the  earth  to 
meet  war  needs.  But  in  relation  to  cur- 
rent production  we  emerge  from  the  war 
with  fields  and  mines  ready  to  pour  forth 
their  bounties  not  only  as  before,  but  in 
the  larger  measure  of  extended  use  and  of 
stimulated  production. 
Men  work  neither  bare-handed  nor  with- 


14  AMERICAN  CITIZENSHIP 

out  leadership.  The  nation's  labor  force 
will  be  productive,  its  natural  resources 
will  be  transmutable,  according  as  in- 
struments of  production — mills,  factories, 
stocks  of  materials,  fluid  capital — abound, 
and  as  directive  intelligence  is  obtainable. 
As  to  the  second — the  Business  Enterprise 
of  our  economic  text-books  —  whatever 
change  the  war  has  wrought  has  been 
largely  gain.  A  swift  process  of  natural 
selection  has  tested  business  ability,  un- 
covering new  talent  here,  discarding  pro- 
prietary interest  there,  sobering  by  greater 
responsibility  and  dignifying  by  larger 
obligation.  Probably  as  never  before  the 
nation  is  equipped  with  captains  of  indus- 
try ready  for  return  to  old  courses  or  for 
venture  into  uncharted  seas. 

Much  more  difficult  to  estimate  are  the 
effects  of  the  war  and  of  its  abrupt  ending 
upon  the  economic  capital  of  the  nation. 
Certain  tendencies,  however,  stand  out 
clear.  As  industry  passed  from  peace  to 
war    footing,    ploughshares    were    beaten 


AND  ECONOMIC  WELFARE  15 

into  swords,  with  attendant  waste,  cost 
and  delay.  During  the  war,  moreover,  the 
normal  processes  of  capital  renewal  and 
capital  formation  were  suspended.  Mills 
and  factories  underwent  depreciation,  rail- 
roads and  terminals  suffered  wear  and  tear 
without  customary  replacement,  in  order 
that  the  materials  and  labor  needed  for 
such  purposes  might  be  used  for  war  pro- 
jects. More  than  this,  the  unconsumed, 
that  is,  the  **  saved  '^  part  of  the  industrial 
product  ordinarily  applied  to  the  extension 
and  improvement  of  production  were 
gulped  in  the  same  ravenous  maw. 

Eough  criteria  of  these  changes  may  be 
sought  in  the  relative  amounts  of  capital 
annually  absorbed  by  building  operations 
in  the  United  States,  and  in  the  expendi- 
tures of  the  national  government  before 
and  during  the  war. 

In  1917  the  outlay  for  building  opera- 
tions in  284  cities  was  $816,609,111  against 
$1,137,160  in  1916  or  a  diminution  of  28.2 
per  cent,  and  against  an  average  of  $990,- 


16  AMERICAN  CITIZENSHIP 

366,614  in  the  eight  year  period,  1909-1916, 
or  a  diminution  of  17.2  per  cent.  Despite 
the  fact  that  1917  building  represented  in 
large  part  war  construction,  we  must  go 
back,  to  find  anything  like  the  same  con- 
traction of  operations,  to  the  post-panic 
year  1908  when,  with  206  cities  reporting, 
the  aggregate  outlay  was  $730,081,871, 
rebounding  to  $1,013,785,972  in  1909.1^ 

The  normal  expenditures  of  the  Govern- 
ment on  a  peace  basis  for  the  fiscal  years 
1917  and  1918,  it  is  estimated,  would  have 
been  $1,000,000,000  for  each  year.  The 
actual  expenditures  for  the  two  years  were 
some  $15,000,000,000,  making  the  total  es- 
timated war  expenditure  up  to  June  30, 
1918,  some  $13,000,000,000.1^  g^t  only  three 
months  of  the  fiscal  year  1917  were  war 
months,  and  on  July  1,  1918,  the  Govern- 
ment was  only  beginning  to  reach  its  full 
stride  in  war  expenditure.  If  it  be  assumed 
that  the  expenditures  of  the  Government 
on  a  peace  basis  would  have  been  at  the 
rate  of  $1,000,000,000  a  year,  then  the  gross 


AND  ECONOMIC  WELFARE  17 

cost  of  the  war  from  April  6,  1917  to  June 
30, 1919  is  estimated  to  have  been  $30,177,- 
000,000  as  compared  with  a  probable  peace 
expenditure  of  $2,250,000,000.^« 

Two  obvious  considerations  suggest 
themselves  in  connection  with  such  ex- 
hibits. An  appreciable  part  of  govern- 
ment war  expenditures  —  docks,  ships, 
housing  projects — are  either  productive 
investments  or  can  be  salvaged  and  con- 
verted into  peace  purposes,  becoming  in  so 
far  a  form  of  new  capital.  The  Secretary 
of  the  Treasury  has  lately  estimated  that 
of  the  government's  war  expenditures  dur- 
ing the  fiscal  year  1918,  nearly  $6,500,- 
000,000  or  some  fifty  per  cent,  were  of  this 
character.^^  More  important,  a  large  part 
of  that  which  the  Government  has  taken 
in  taxes  or  borrowed  in  loans  comes  not 
from  capital  but  from  augmented  net  in- 
come— consequent  upon  greater  effort  in 
production  and  greater  restraint  in  ex- 
penditure. Such  enlarged  income  is,  of 
course,  potential  peace  capital,  and  one 

2 


18  AMERICAN  CITIZENSHIP 

of  the  economic  tragedies  of  the  war  is 
that  more  of  the  results  of  war  toil  and 
thrift  do  not  inure  to  the  lasting  benefit  of 
society.  But  to  the  extent  that  war  earn- 
ings are  used  for  war  needs,  encroachment 
upon  the  country's  industrial  capital  is 
reduced. 

We  have  no  means  of  determining  what 
part  of  the  capital  losses  of  the  war  have 
been  corrected  in  this  manner  by  new  capi- 
tal formation.  The  ordinary  index  of 
relative  scarcity  or  abundance — the  money 
rate — has  been  so  deflected  by  public  bor- 
rowing, credit  expansion  and  direct  control 
— as  to  offer  little  aid.  If  economic  history 
count  for  anything  it  will  surely  hereafter 
appear,  when  in  the  course  of  the  business 
cycle  years  of  famine  succeed  years  of 
plenty — that  some  part  of  the  depression 
is  imputable  to  war  w^astage.  Our  present 
concern  is  with  the  short  swing  and  as  to 
this,  so  much  at  least  may  be  ventured: 
that,  whether  by  reason  of  the  greater 
efficiency  of  our  banking  mechanism  or  in 


AND  ECONOMIC  WELFARE  19 

consequence  of  our  new  position  as  a 
creditor  nation,  the  supply  of  capital  now 
available  for  business  resumption  is  ready 
and  ample. 

With  our  labor  force  but  slightly  re- 
duced, with  our  natural  resources  unim- 
paired, with  our  industrial  leadership 
quickened  and  with  a  seemingly  adequate 
capital  supply — what  is  the  menace  to  which 
our  economic  welfare  is  exposed?  It  con- 
sists largely  in  the  inability  of  the  business 
world  to  absorb  quickly  and  successfully 
the  shocks  and  strains,  first  of  war  and 
then  of  peace.  Like  some  great  complex 
machine — jarred,  jolted,  strained,  put  to 
strange  uses,  sections  taken  apart  and 
relocated — the  productive  mechanism  is 
functioning  badly.  All  the  essential  parts 
are  present;  but  there  is  creaking  and 
jerkiness,  uncertainty  as  to  what  is  amiss, 
fear  lest  outright  breakdown  follow. 

The  disorder  is  thus  psychological  rather 
than  physical.    It  is  akin  to  that  form  of 


20  AMERICAN  CITIZENSHIP 

shock-caused  paralysis  wherein  sound  or- 
gans and  healthy  members  function  imper- 
fectly because  the  central  intelligence, 
jarred  into  disorder,  fails  to  correlate  and 
coordinate. 

For  this  disorder  hortatory  invocation 
will,  I  take  it,  prove  no  corrective.  There 
is  something  touchingly  naive  about  much 
that  is  said  and  done  in  the  domain  of  in- 
dustrial hypnotics.  Like  the  '^  sunshine 
societies  ''  which  were  to  revive  business 
from  the  post-panic  depression  of  1908,  and 
the  **  business  as  usual  '*  propaganda 
which  was  to  avert  war-time  curtailment 
in  the  autumn  of  1914,  we  hear  now  of 
price  reduction  by  common  agreement  and 
of  business  resumption  by  an  infectious 
optimism.  We  shall  never  raise  ourselves 
by  tugging  at  our  bootstraps  in  this  man- 
ner. Mental  depression  is  to  be  relieved 
less  by  rhetorical  suggestion  than  by  direct 
reaction  to  external  stimuli.  We  may 
*  *  rezoloot  till  the  cows  come  home  ' '  ^^ 
and  the  economic  transition  from  war  to 


AND  ECONOMIC  WELFARE  21 

peace  will  continue  painful  and  costly 
unless  definite  policies  be  initiated  and 
specific  remedies  be  applied,  in  direct  cor- 
rection of  the  arrest  which  has  descended 
upon  the  business  world  and  of  the  depres- 
sion which  threatens  its  further  course. 

The  definite  measures  which  economic 
analysis  suggests  as  likely  in  this  juncture 
to  make  for  business  stability  are  (1)  con- 
sistent government  policy,  (2)  courageous 
deflation  of  credit,  (3)  retrenchment  in 
public  and  private  expenditure  and  (4) 
arbitral  adjustment  of  industrial  disputes. 

(1)  The  essence  of  business  enterprise 
is  ability  to  anticipate  and  provide  for 
prospective  events.  This  skill  in  **  dis- 
counting ' ' — seen  in  almost  uncanny  form 
in  stock  and  produce  exchange  operations 
— figures  in  ordinary  business  affairs. 
The  manufacturer  buys  his  materials  now, 
with  an  eye  to  what  the  corresponding 
costs  are  likely  to  be  a  six  months  hence. 
He  fashions  his  wares  with  respect  to  de- 


22  AMERICAN  CITIZENSHIP 

mands  that  will  appear  hereafter.  He 
determines  his  cost  sheets  and  fixes  his 
price  schedules  upon  an  estimate  of  pros- 
pective operating  changes.  In  a  word  he 
plans,  fashions  and  ventures  in  the  light 
of  his  insight  or  forecast  as  to  what 
impends. 

If  these  uncertainties  are  the  normal 
risks  of  business  activity  he  is  inspired  by 
the  prospect  of  competitive  gain.  To  an- 
ticipate more  accurately,  to  provide  more 
successfully  means  larger  sales  and  greater 
profits  and  these  are  the  lure  of  legitimate 
enterprise.  But  if  the  future  be  clouded 
and  uncertain,  passing  from  the  ordinary 
dynamics  of  modern  social  life  to  a  con- 
fused vacillating  riot  of  governmental  dis- 
turbance and  administrative  change,  busi- 
ness will  halt  and  enterprise  mark  time. 

This  is  the  plight  in  which  the  business 
world  now  finds  itself.  The  enterpriser 
released  from  the  pressure  of  war  industry 
desires  instinctively  to  resume  acustomed 
business  life.     If  a  merchant,  his  inclina- 


AND  ECONOMIC  WELFARE  23 

tion  is  to  turn  from  depleted  shelves  and 
hand-to-mouth  replacement  to  early  order- 
ing and  large  buying.  If  a  manufacturer, 
his  impulse  is  to  reconvert  his  plant  as 
swiftly  as  possible,  to  place  contracts  for 
materials,  to  assume  financial  commit- 
ments, to  reassemble  his  working  body  and 
to  disperse  his  selling  force  over  the  seven 
seas. 

But  at  the  very  start  his  wings  are 
clipped  and  his  feet  lead- weighted  by  doubt 
as  to  the  trend  of  governmental  policy. 
As  to  materials,  is  a  free  market  to  be  re- 
established or  is  public  price  fixture  in 
some  form  or  other  to  continue?  As  to 
capital,  is  war-time  inflation  and  credit 
rationing  to  persist  or  is  a  period  of  defla- 
tion in  sight!  As  to  labor,  are  wages  to 
accommodate  themselves  to  a  lower  level 
of  commodity  prices  or  are  newer  stan- 
dards of  subsistence  to  be  maintained  by 
governmental  intervention  1  Beyond  these 
are  specialized  alternatives.  Are  the 
railroads   to   continue  under   government 


24  AMERICAN  CITIZENSHIP 

operation  or  to  be  returned  to  corporate 
control?  Is  the  newly  created  marine  to 
be  subsidized  or  to  remain  independent! 
Is  the  protection  of  war  blockade  and  con- 
trolled tonnage  to  be  continued  by  higher 
tariffs  in  aid  of  war  stimulated  industries  ? 
Direct  and  immediate  as  is  the  influence 
of  each  such  policy  upon  industry,  the 
important  consideration  to  the  business 
man  is  not  so  much  as  to  which  particular 
policy  be  adopted — ^but  rather  that  he  be 
advised  as  to  the  nature  of  the  choice  and 
that  the  choice  having  once  been  made 
there  be  no  abrupt  and  erratic  departure 
therefrom.  This  does  not  mean  artificial 
stability.  The  enterpriser  is  quite  pre- 
pared to  cope  with  the  ordinary  risks  and 
uncertainties  of  the  business  cycle.  That 
which  lies  beyond  his  ken  and  rather  than 
struggle  with  which  he  is  likely  to  remain 
inactive  are  the  vagaries  of  political  op- 
portunism, the  shifts  of  partisan  jockey- 
ing and  the  uncertainties  of  administrative 
ineptitude.    In  times  such  as  these  gov- 


AND  ECONOMK;  welfare  25 

ernments  like  individuals  will  in  many 
particulars  feel  their  way.  Nor  is  the  busi- 
ness man  clamorous  for  a  final  undeviating 
chart.  What  occasions  resentment  and 
begets  stagnation  is  doubt  and  change 
made  necessary  not  by  the  complexities  of 
swift  moving  events  but  by  the  mean  pur- 
poses of  political  manoeuvre  and  by  the 
petty  gains  of  party  strategy. 

(2)  Of  the  various  uncertainties  with 
which  the  business  man  is  at  this  time 
plagued,  the  most  immediate  is  the  range 
of  prices.  Unrest  in  the  labor  world,  re- 
straint in  the  consuming  public,  caution 
among  retailers  and  jobbers,  hesitation 
and  check  in  manufacturing — are  all  trace- 
able to  bewilderment  as  to  the  price  move- 
ment :  the  cause  of  the  past  rise,  the  dura- 
tion of  the  present  stubborn  resistance  to 
fall,  the  occurrence  and  extent  of  the  future 
decline. 

The  monthly  index  number  of  wholesale 
commodity  prices  compiled  by  the  U.  S. 
Bureau  of  Labor  rose,  as  compared  with 


26  AMERICAN  CITIZENSHIP 

100  for  1913  prices,  from  182  in  May,  1917, 
to  219  in  July,  1919— the  latest  date  for 
which  figures  are  available — or  20.3  per 
cent.  The  movement  in  retail  food  prices 
was  from  151  in  May,  1917,  to  192  in 
August,  1919,  or  27.2  per  cent.^i  Since 
August  1,  there  has  been  some  recession, 
wholesale  commodities,  according  to  Brad- 
street's  being  2.6  per  cent,  lower  on  Sep- 
tember 1,  and  food-stuffs,  9.2  per  cent,  lower 
on  September  25.^^  But  the  drop  has  only 
partly  overcome  the  1919  advance  in  whole- 
sale prices  and  has  actually  left  prevail- 
ing food-stuff  prices  higher  than  the  war 
range. 

A  full  analysis  of  the  price  movement 
of  the  past  two  years  would  bring  upon 
the  table  many  factors  the  respective  con- 
tributions of  which  are  often  debated  or 
challenged,  and  always  intricate  and  com- 
plex. But  that  some  part  of  it  is  the 
result  of  credit  inflation  is  the  common 
opinion  of  economists.  The  ^*  money  in 
circulation  "  in  the  country,  that  is  the 


AND  ECONOMIC  WELFARE  27 

general  stock  of  money,  less  the  amount 
held  in  the  Treasury  as  assets  of  the 
Government  and  the  amounts  held  by  the 
Federal  Eeserve  Banks  and  Federal  Ee- 
serve  Agents  against  issues  of  Federal 
Reserve  Notes — has  increased  from  $4,- 
736,841,963  or  a  per  capita  circulation  of 
$45.61 — on  May  1,  1917,  just  before  our 
entry  into  the  war,  to  $5,841,026,528,  or 
a  per  capita  circulation  of  $54.28  on  July 
1,  1919.2^  In  other  words,  the  country  is 
carrying  on  its  business  with  approxi- 
mately twenty  per  cent,  additional  circu- 
lating medium. 

As  to  the  increase  of  deposit  currency: 
the  individual  deposits  subject  to  check  of 
the  national  banks  increased  from  $6,627,- 
833,000  on  May  1,  1917,  to  $8,479,747,000 
on  June  30,  1919 — something  more  than 
$1,850,000,000.  To  this  must  be  added  the 
increase  in  like  deposits  of  the  state  banks 
and  trust  companies,  as  to  which  no  final 
data  are  now  available.  Making  the  most 
conservative  allowance,  it  is   safe  to  as- 


28  AMERICAN  CITIZENSHIP 

sume  that  the  deposit  currency  of  the 
country  is  more  than  $2,000,000,000  greater 
than  at  the  time  of  our  entry  into  the  war 
two  years  ago.^* 

Not  only  has  the  bank  credit  of  the 
country  increased  in  volume,  but  it  has 
undergone  important  change  in  texture 
and  in  structural  support.  At  the  out- 
break of  the  war  the  ratio  of  gold  reserves 
to  net  deposits  and  Federal  Eeserve  Note 
liabilities  combined  was  80  per  cent.;  on 
July  18,  1919,  the  corresponding  ratio  was 
50  per  cent.  At  the  outbreak  of  the  war 
the  Federal  Eeserve  Banks  held  in  their 
portfolios  $104,000,000  of  discounted  bills 
of  which  $84,000,000  had  been  bought  in 
the  open  market.  On  July  18,  1919,  the 
Federal  Reserve  Banks  held  $2,200,428,000 
bills,  of  which  only  $372,353,000  were  open 
market  purchases  and  of  which  $1,579,- 
728,000  were  war  paper — the  notes  of 
member  banks  and  other  customers  secured 
by  government  war  obligations.^^ 

It  is  a  seemingly  inevitable  consequence 


AND  ECONOMIC  WELFARE  29 

of  war  financing,  be  its  chief  reliance  bor- 
rowing or  taxation  or  a  rational  combina- 
tion of  the  two — that  there  is  injected  into 
the  exchange  mechanism  of  the  country  a 
volume  of  fiat  credit  or  a  mass  of  addi- 
tional circulating  medium  in  excess  of  that 
required  by  the  increase  in  production  or 
by  the  greater  activity  of  trade.^^  In  the 
experience  of  the  United  States  this  tend- 
ency has  been  aggravated  by  our  policy 
of  anticipatory  borrowing  taking  the  form 
of  the  creation  of  huge  volumes  of  bank 
credit  as  government  deposits  in  payment 
of  Treasury  certificates  of  indebtedness. 
Moreover  the  continuation  of  this  policy 
of  anticipatory  borrowing,  even  after  the 
suspension  of  active  hostilities,  has  oper- 
ated to  delay  and  counteract  the  natural 
course  of  credit  deflation  and  price  de- 
cline-^*^ 

It  is  of  vital  importance  to  the  labor 
world,  to  business  circles  and  to  the  gen- 
eral public  that  in  the  borrowing  opera- 
tions in  which  the  government  is  about  to 


30  AMERICAN  CITIZENSHIP 

engage  there  should  be  no  further  re- 
course, direct  or  indirect,  to  such  methods. 
Further  inflation  once  checked  by  cessa- 
tion of  credit-paid  borrowing,  we  should 
enter  promptly  and  courageously  upon  the 
course  of  deflation.  This  will  entail  con- 
traction of  note  circulation  and  liquidation 
of  rediscounted  war  paper,  by  adequate 
taxation,  savings-paid  borrowing  and  stif- 
fened discount  rates.  The  process  may  be 
gradual;  but  it  should  be  begun  early  and 
continued  steadily.  To  assume  that  by 
any  other  method  can  general  prices  be 
substantially  reduced  and  the  supersensi- 
tiveness  of  an  expanded  credit  situation 
be  eliminated  is  to  neglect  historical  prece- 
dent, theoretical  analysis  and  contempo- 
rary evidence. 

(3)  A  nation  at  war  spends  lavishly. 
The  need  is  so  dire,  the  urgency  so  great, 
the  revenue  so  ready  that  old  canons  of 
caution  and  restraint  are  cast  to  the  winds, 
and  public  disbursement  comes  to  be  lim- 
ited only  by  the  physical  power  to  spend. 


AND  ECONOMIC  WELFARE  31 

It  is  not  easy  to  revert  to  the  older  caution, 
even  with  the  return  of  peace.  Like  some 
Lord  Bountiful  rioting  with  free  purse  for 
a  season  and  then  face  to  face  with  a  daily 
stint,  the  country  finds  it  hard  to  forego 
accustomed  largeness — even  to  discontinue 
tolerated  looseness.  Quite  apart  from  the 
carry-over  of  war  contracts  and  commit- 
ments and  the  continuing  charge  of  war 
indebtedness,  this  heritage  of  easy  expend- 
iture is  a  grave  fiscal  penalty  of  the  war. 
No  exchequer  could  pass  from  a  pre-war 
expenditure  of  $1,000,000,000  a  year  to  a 
war  expenditure  of  $1,000,000,000  a  month, 
and  not  develop  habits  of  prodigality  and 
laxity — sadly  inconsistent  with  a  period  of 
after-war  adjustment. 

Reckon  as  we  will,  industry  and  indus- 
trial income  face  a  long  period  of  drastic 
taxation.  The  business  man  will  not  be 
crushed  by  the  reality,  but  he  is  not  exhila- 
rated by  the  prospect.  He  faces  the  bur- 
dens of  peace  time  as  he  did  those  of  war 
time,  resignedly — it  is  too  much  to  hope, 


32  AMERICAN  CITIZENSHIP 

uncomplaiiimgly — in  so  far  as  he  is  con- 
vinced that  they  are  necessary  in  amount 
and  equitable  in  distribution.  Let  him  see 
evidence  of  this  in  curtailment  and  econ- 
omy, and  he  bends  to  his  task  with  grim 
acceptance  passing  into  venturesome  enter- 
prise. 

The  complement  of  public  retrenchment 
is  private  thrift.  Each  policy  is  likely  to 
excite  outcry.  If  Congress  provide  for  no 
new  postoffices  nor  customs-houses,  what  of 
the  bricklayers  and  carpenters ;  and  if  more 
of  our  wages  and  earnings  are  put  away  as 
savings,  how  are  mills  to  resume  and  mer- 
chants to  prosper?  The  answer  is  as  old 
as  Bastiat's  window-glazier. ^^  The  diver- 
sion of  income  from  spending  to  saving 
means  not  lessened  production,  but  changed 
production.  The  dollars  and  the  pennies 
that  find  their  way  into  deposit  accounts 
will  be  used  by  the  banks  in  loans,  direct 
or  through  bond  purchases,  to  manufac- 
turers, merchants,  farmers,  railroads, 
public  utilities  and  industrial  enterprise 


AND  ECONOMIC  WELFARE  33 

in  general.  Demand  will  be  created  and 
business  stimulated  quite  as  much  as  in  the 
case  of  direct  expenditure ;  but  the  ultimate 
outcome  will  be  much  to  the  advantage  of 
the  saving  policy.  By  the  mere  deferring 
of  the  enjoyment  it  becomes  possible  for 
desirable  addition  to  be  made  to  the 
nation's  industrial  capital.  Even  though 
the  war  years  have  not  wrought  a  crip- 
pling impairment  of  industrial  plants, 
there  has  been  abnormal  depreciation  suf- 
fered through  the  intensity  of  war  produc- 
tion and  the  disregard  of  upkeep.  The 
classical  doctrine  as  to  the  advantage  of 
saving  has  been  questioned  in  more  recent 
economic  writing  on  the  score  that  spend- 
ing both  stimulates  a  higher  standard  of 
life  and  averts  congestion  of  production 
goods. ^^  Whatever  possibility  may  exist 
in  this  direction  under  normal  industrial 
conditions  does  not  obtain  in  a  post-war 
period  after  the  capital  equipment  of  the 
country  has  been  possibly  starved  and  cer- 
tainly unaugmented. 
3 


34  AMERICAN  CITIZENSHIP 

(4)  The  resumption  of  industry  will  be 
hastened  or  delayed,  and  once  resumed  will 
gain  in  activity  or  suffer  check — accord- 
ing as  the  prospect  of  labor  disturbance 
threatens  or  its  presence  dislocates.  In  a 
succeeding  meeting,  I  hope  to  consider  cer- 
tain notable  features  of  the  present  labor 
situation  and  the  obligations  imposed  upon 
the  state  and  upon  the  citizen.  At  this  time 
I  am  concerned  only  with  the  direct  depend- 
ence of  business  resumption  upon  labor 
adjustment. 

It  is  an  amazing  instance  of  the  prone- 
ness  of  the  American  mind  to  pursue  the 
mote  and  neglect  the  beam,  that  at  a  time 
when  feeling  is  intense  and  widespread 
that  wars  and  alarms  of  war  must  at  any 
cost  be  averted  by  the  establishment  of 
international  tribunals,  there  should  be 
only  a  vague  and  uncertain  demand  for  the 
prevention  of  industrial  war  within  the 
country  by  means  of  arbitral  intervention. 
War  is  as  definite  an  anachronism  in  indus- 
trial relations  as  in  international  affairs. 
Its  Heedlessness  is  as  gross;  its  demorali- 


AND  ECONOMIC  WELFARE  35 

zation  as  wide ;  its  penalties  as  acute.  For 
employers  and  workmen  to  fail  to  adjust 
differences  as  to  wage  rates  or  condi- 
tions of  employment  without  resorting  to 
primal  methods,  euphemistically  termed 
**  economic  weapons/'  and  for  an  indus- 
trial society  to  tolerate  such  failure  with 
its  attendant  social  injuries  and  industrial 
wastes — is  economic  barbarism.  In  ordi- 
nary times  the  business  world,  rather  than 
forego  its  outworn  creed,  may  persist 
in  this  costly  bungling,  and  society  may 
acquiesce.  In  a  period  as  critical  as  that 
which  we  now  confront,  with  the  welfare 
of  the  nation  for  a  decade  to  come  in  the 
balance,  some  part  of  that  moral  force 
which  is  relentlessly  driving  the  nations  of 
the  world  into  a  greater  society  dominated 
by  justice  may  surely  be  invoked  to  impose 
a  reign  of  law  upon  the  opposed  elements 
of  the  industrial  world.  A  great  social 
achievement  of  the  war  period  was  the  gen- 
eral suspension  of  industrial  conflict  by 
generous  concessions  on  both  sides.  Democ- 
racy may  properly  demand  an  extension  of 


36  AMERICAN  CITIZENSHIP 

this  industrial  "  treuga  Dei ''  over  the 
period  of  after-war  adjustnient,  perhaps 
even  into  the  years  beyond. 

Wise  statesmanship,  sound  finance,  pub- 
lic and  private  economy,  industrial  peace — 
these  are  after  all  common  rubrics  of  an 
old  homily.  But  perhaps  to  the  political 
economist,  no  more  than  to  any  other  free- 
born  American  citizen  is  it  forbidden 
upon  right  occasion  to  ''  calmly  drink  and 
jaw. ' '  ^^  You  who  have  listened  so  patiently 
must  seek  comfort  in  Thackeray  ^s  promise 
that  *  *  The  Reverend  Mr.  Malthus  shall  be 
burned  annually,  instead  of  Guy  Fawkes  " 
— when  Punch  is  king.^^  Even  two  centu- 
ries ago,  when  giants  stalked  in  the  land — 
**  the  sagacious  Petty  and  the  experienced 
Child,  the  profound  Temple  and  the  intelli- 
gent Davenant,*'  in  Chalmer^s  discriminat- 
ing phrases  ^^ — the  Spectator  could  class 
political  arithmetic  as  **  an  art  of  greater 
use  than  entertainment."^^ 

There  may  be  a  shorter  road  to  Robin 
Hood 's  barn.   Napoleon  entertained  *  *  utter 


AND  ECONOMIC  WELFARE  37 

horror ' '  of  Political  Economy,  because 
*'  on  such  subjects  he  trusted  to  common 
sense. ' '  ^^  And  even  our  own  Daniel  Web- 
ster protested,  ^ '  For  my  part,  though  I 
like  the  investigation  of  particular  ques- 
tions, I  give  up  what  is  called  the  science 
of  political  economy — if  I  were  to  pick  out 
with  one  hand  all  mere  truisms,  and  with 
the  other  all  doubtful  propositions  little 
would  be  left."  ^^  But  Napoleon's  *^  com- 
mon sense  "  and  Webster's  **  investiga- 
tion ' '  was  each  sufficient  economic  endow- 
ment of  its  own.  To  coarser  clay — 
Malthus's  citizen  *'  who  has  retired  and 
whose  ideas,  perhaps  scarcely  soar  above, 
or  extend  beyond  his  little  garden,  pud- 
dling all  the  morning  about  his  borders  of 
box  ' ' — there  is  no  like  escape.  We  may 
fall  far  short  of  John  Adams'  gracious 
tribute  to  Daniel  Eaymond,  *  *  You  have 
indeed  cracked  the  shell  of  political 
economy  and  extracted  the  purest  oil  from 
the  nut  "  ^^ — ^but  there  will  have  been  disci- 
pline and  service  in  the  endeavor. 


THE  LABORER'S  HIRE 


II 

THE   LABORER'S   HIRE 

To  those  who  fear  that  the  occasional 
conflicts  of  economic  inquiry  and  public 
opinion  bode  ill  for  the  future  of  intellec- 
tual freedom  in  the  social  sciences,  there  is 
much  reassurance  in  the  changed  attitude 
of  constituted  authority  towards  the  study 
of  popular  unrest. 

In  1794  Dugald  Stewart,  writing  to  Lord 
Craig  in  defence  of  the  favorable  senti- 
ments he  had  expressed  as  to  the  French 
Economistes  ''most  of  whom  are  long  since 
dead,"  added:  **  I  have  been  so  uniformly 
impressed  with  a  sense  of  the  importance 
of  my  situation,  that  among  all  the  inter- 
esting questions  which  have,  during  the 
last  nine  years,  divided  our  political  par- 
ties, I  have  never  introduced  the  slightest 
reference  to  any  of  them  excepting  in  the 
single  instance  of  the  African  trade,  on 

41 


42  AMERICAN  CITIZENSHIP 

which  I  formerly  expressed  myseK  with 
some  warmth; — and  even  these  expres- 
sions I  dropped  from  my  course,  as  soon 
as  it  became  matter  of  popular  discussion. ' ' 
Even  a  generation  later  when  the  English 
mind  was  less  perturbed  as  to  *  *  the  French 
philosophers  in  general,  and  the  tendency 
of  their  sceptical  doctrines  to  corrupt  the 
morals,  and  to  poison  the  happiness  of 
mankind, ' '  ^  and  within  a  few  years  of  the 
time  when  political  economy  had  attained 
such  vogue  that  Maria  Edgeworth  could 
note  that  it  was  the  fashion  for  **blue 
ladies  to  make  a  great  jabbering  on  the 
subject ''  ^ — **  Prize  "  Pryme,  the  first  lec- 
turer on  Political  Economy  at  Cambridge, 
recorded  in  his  *  *  Autobiographic  Eecollec- 
tions  '  * :  ^  ^  In  my  early  courses  I  vindicated 
Brutus  from  an  accusation  of  an  usurious 
transaction  preferred  against  him  by  Adam 
Smith  in  his  Wealth  of  Nations.  On  its 
being  suggested  to  me  that  this  might 
induce  a  supposition  of  political  bias  on 
my  part,  I  expunged  the  passage.'** 


AND  ECONOMIC  WELFARE  43 

In  the  round  century  that  has  since 
passed,  there  has  been  successive  reaction 
in  the  current  estimate  of  economic  study. 
This  is  evidenced  by  the  changing  epithet 
of  the  day.  The  *  ^  gospel  of  Mammonism, ' '  ^ 
having  lapsed  into  a  chapter  of  **  the  his- 
tory of  political  blindness,"^  now  appears 
as  *  *  a  rich  field  for  the  activities  of  creative 
genius."  ^  No  one  in  these  times — Bourbon 
or  Bolshevik  —  would  dare  to  discuss 
matters  of  social  policy  without  regard  to 
economic  opinion.  The  economist  may  be 
damned  as  a  professor  or  canonized  as  a 
lawgiver;  he  will  not  be  neglected  as  an 
outsider.^ 

It  would  thus  be  a  crude  avoidance — ^both 
as  a  scientific  requirement  and  as  a  prac- 
tical service — ^to  deny  large  place  in  any 
study  of  the  present  economic  obligations 
of  American  citizenship  to  that  which,  un- 
happily enough,  is  described  as  * '  the  labor 
problem'' — or  to  refuse  to  do  this  in 
specific  terms  and  with  respect  to  recent 
events  and  to  immediate  prospects.    There 


44  AMERICAN  CITIZENSHIP 

is  widespread,  insistent  concern  as  to  what 
have  been  the  changes  which  the  war  has 
wrought  in  the  wage-earner's  state,  and  as 
to  what  constitute  the  unstable  elements  of 
the  present  labor  situation.^ 

Here  again  it  is  right  to  warn  at  the 
outset  against  any  hope  of  ready-at-hand 
explanation  or  of  panacea-like  solution.  In 
1813  Robert  Owen  put  forth  his  ''  New 
View  of  Society  *'  with  a  far  more  com- 
forting certainty:  **  The  knowledge,  how- 
ever, which  is  about  to  be  introduced  will 
make  it  evident  to  every  understanding, 
that  by  far  the  greater  part  of  the  misery 
with  which  man  is  encircled  may  he  easily 
dissipated  and  removed;  and  that  with 
mathematical  precision  he  may  he  sur- 
rounded with  those  circumstances  which 
must  gradually  increase  his  happiness. ' '  ^^ 
Even  when  reminded  by  Francis  Place  of 
an  Edinburgh  Reviewer's  use  of  the  Mal- 
thusian  argument  in  criticism  there  was  no 
recession.  **  He  tells  me,  as  he  has  all 
along  done, ' '  noted  Place  in  uncomplaining 


AND  ECONOMIC  WELFARE  45 

mildness,  **  that  he  has  made  no  mistake 
but  that  I  am  ^  ignorant '.''  ^^ 

In  economics  as  in  ethics  and  in  politics 
the  world  needs  its  prophets — ^to  scourge 
what  is,  to  emblazon  what  might  be — ^Leigh 
Hunt's  **men  who  in  their  own  persons, 
and  in  a  spirit  at  once  the  boldest  and  most 
loving,  dared  to  face  the  most  trying  and 
awful  questions  of  the  time. ' '  ^^  But  it 
needs  too  its  slow,  cautious  students  who 
shall  search  the  problem  with  careful  eye 
to  what  has  gone  before,  who  shall  know 
and  profit  by  what  is  happening  elsewhere 
and  who  shall  give  guarded  counsel  as  to 
remedy  and  treatment.  This  preeminently 
in  discussion  of  the  labor  problem  is  the 
role  of  the  political  economist. 

A  reaction  from  war-time  depression  has 
been  the  consolatory  proposal  that  a  conse- 
quence of  world  convulsion  is  economic 
advance.  Not  only  is  recourse  had  to 
familiar  social  philosophizing — the  theory 
of  recurrent  over-population,  the  theory  of 


46  AMERICAN  CITIZENSHIP 

social  evolution  and  the  theory  of  personal 
fortitude  and  industrial  diversity ;  ^^  but  a 
considerable  body  of  evidence  is  adduced 
in  support  of  the  contention  that  if  not  a 
condition,  war  is  at  least  an  incident  of 
economic  progress.  Thus  in  Great  Britain 
the  testimony  of  the  Ministry  of  Labour 
is  that  there  has  been  a  *^  steady  decline 
in  destitution  during  the  war  ' ' — and  a 
marked  decline  as  compared  with  ante- 
bellum conditions.^^  In  the  United  States 
the  computations  of  the  Bureau  of  Social 
Statistics  of  New  York  City  indicate  that 
the  amount  of  general  dependence  in  that 
city  at  the  end  of  1917  was  only  one-third 
of  that  existing  at  the  end  of  1914.^^ 

It  seems  reasonably  certain  that  for  the 
immediate  duration  of  the  war,  and  in  the 
area  of  belligerency  rather  than  in  the  zone 
of  hostilities,  the  volume  of  social  depend- 
ence was  reduced,  and  the  well-being  of 
certain  working  groups  above  the  poverty 
line  enhanced.  That  the  same  gain  was 
achieved  by  the  laboring  world  generally 


AND  ECONOMIC  WELFARE  47 

is  by  no  means  as  clear.  To  a  very  con- 
siderable extent  the  benefit  of  increased 
earnings  was  lost  by  rising  living  costs, 
extending  in  cases  to  outright  net  disad- 
vantage. The  United  States  Bureau  of 
Labor  Statistics  has  computed  that  the 
wages  per  hour  in  certain  organized  trades 
for  which  data  have  been  collected  were 
33  per  cent,  higher  in  1918  than  in  1913 
and  48  per  cent,  higher  than  in  1907,  but 
that  a  far  greater  change  took  place  in 
retail  prices  of  food — ^the  increase  from 
1913  to  1918  being  68  per  cent,  and  from 
1907  to  1918, 105  per  cent.  In  other  words, 
an  hour's  wages  in  1918  purchased  but  79 
per  cent,  as  much  food  as  in  1913  and  but 
72  per  cent,  as  much  as  in  1907.^®  Such 
comparisons  must  be  further  modified  by 
allowance  for  more  regular  employment 
and  for  more  overtime  work  in  1918  than 
in  earlier  years ;  but  the  general  character 
of  the  exhibit  is  not  likely  to  be  thereby 
reversed. 

For  the  long  run,  economic  law  holds  the 


48  AMERICAN  CITIZENSHIP 

bank.  With  the  world  struggle  in  its  tense 
industrial  aspect  over,  and  labor  facing  the 
trials  and  strains  of  readjustment  and 
reconstruction,  the  deep-rooted,  traditional 
sense  of  mankind  has  again  been  justified : 
that  war  is  a  bitter  social  calamity,  that  it 
works  peculiarly  to  the  economic  injury  of 
wage-earning  classes,  and  that  it  does  this 
by  reason  of  its  wastage  and  destruction, 
its  feverish  stimulation  and  its  social  after- 
math.i^ 

Nothing  need  be  said  of  the  great  untabu- 
lated  social  losses — ^the  unrecorded,  unre- 
cordable  deductions  from  the  well-being  of 
the  race — devastated  areas,  outright  fatal- 
ities, the  maimed  and  the  mutilated,  stricken 
homes,  widowhood  and  orphanhood,  the 
moral  laxity  and  the  religious  unsettlement 
of  nations  warring  and  warred  against, 
even  that  which  to  those  who  have  conse- 
crated their  lives  to  the  search  for  truth 
is  the  greatest  injury  of  all — ^the  under- 
mining of  intellectual  idealism,  the  denial 


AND  EC50N0MI0  WELFARE  49 

of  scientific  verity,  the  mockery  of  world 
altruism.  These  woes  may  neither  be 
inventoried  nor  tabulated.  They  make  up 
a  great  total  of  ill-being  or  **  illth/^  only 
to  be  left  out  of  the  reckoning  from  sheer 
lack  of  a  common  denominator.  The  world 
is  the  poorer  for  such  calamities,  and  all 
who  live  in  it  suffer  because  they  have 
happened. 

It  is  with  the  direct  palpable  effects  of 
war  upon  the  well-being  of  wage-earning 
classes  that  our  inquiry  lies.  In  how  far, 
if  at  all,  is  the  toiler  in  the  United  States  I 
the  worse  for  the  events  of  the  world  con- 
vulsion? 

The  elements  which  make  the  laborer's 
well-being  difficult  and  insecure  in  the  pass- 
ing of  an  industrial  state  from  war  back 
again  to  peace  may  be  summarized  as  (1) 
unemployment,  (2)  wage  reduction,  (3) 
price  inflation  and,  negatively,  (4)  the 
restricted  social  activities  of  the  state. 

(1)  After-war  unemployment  is  due  in 
4  ' 


60  AMERICAN  CITIZENSHIP 

part  to  the  stoppage  of  war  industries,  in 
part  to  the  demobilization  of  armed  forces 
and  war-time  administration,  in  part  to 
the  restricted  production  consequent  upon 
the  reduced  purchasing  power  of  the  wage- 
earners  so  discharged.  Much  of  this  is 
inevitable.  Munition  plants  cannot  con- 
tinue making  shells ;  nor  emergency  facto- 
ries gas  masks.  Armies  must  be  demobil- 
ized and  administrative  bureaus  disbanded. 
The  labor  supply  thus  abruptly  released 
cannot  be,  under  the  most  favorable  cir- 
cumstances, immediately  absorbed.  The 
phrase  ^*  waiting  jobs  '*  is  for  any  but  the 
individual  laborer  a  kindly  figure  of  speech. 
Jobs  cannot  wait.  They  are  either  filled 
when  vacated,  or  they  cease  to  be.  If  they 
are  filled,  the  return  of  the  absentee  in- 
volves a  displacement  of  the  temporary 
incumbent;  if  they  have  been  abolished, 
restoration  is  uncertain  and  conditional. 

Organized  labor  will  struggle  bravely, 
and  in  a  measure  successfully,  against  this 
drift.     It  wiU  be  able  here  and  there  to 


AND  ECONOMIC  WELFARE  51 

substitute  part-time  employment  of  an 
entire  labor  force  for  outright  unemploy- 
ment of  some  part  of  that  force.  It  will 
be  able  to  resist  unnecessary  encroachment 
upon  its  wage  scales,  and  most  important 
of  all  it  will  be  able  to  maintain  its  exist- 
ence as  an  instrumentality  for  collective! 
bargaining.  But  the  larger  penalties  it  ^ 
cannot  escape.^^ 

(2)  It  is  not  only  from  the  unemploy- 
ment or  reduced  employment  of  demobili- 
zation that  working  class  incomes  are 
bound  to  suffer.  Peace  pricks  the  bubble 
of  war  gains,  be  they  excess  profits  or 
bonus  wages.  With  the  nation's  existence 
in  the  balance  there  is  neither  time  nor 
warrant  for  that  competitive  higgling 
which  in  the  long  run  is  the  safeguard  of 
society.  War  loans  and  war  taxes  supply 
seeming  limitless  funds;  and  the  govern- 
ment, always  a  generous  employer,  is, 
under  the  critical  stress,  less  than  ever  dis- 
posed to  drive  a  hard  bargain.    The  rule 


52  AMERICAN  CITIZENSHIP 

of  commercial  employment  is  different.  The 
margin  is  scantier,  the  pressure  stronger, 
the  competition  fiercer.  Just  as  profits 
pass  from  the  years  of  plenty  to  the  years 
of  famine,  so  the  labor  world  confronts  the 
changed  conditions  of  a  reduced  social  sur- 
plus and  a  more  rigorous  division. 

(3)  The  hardships  of  unemployment  and 
the  suffering  of  falling  wages  are  exag- 
gerated by  the  vicious  relation  of  war 
financing  and  credit  expansion. ^^  The 
result,  as  we  have  already  noted,  is  a  sharp, 
continuous,  widespread  rise  in  prices — 
wholesale  and  retail,  commodities  and 
foodstuffs — extending  far  beyond  the  range 
of  those  goods  immediately  subject  to  war 
demands  and  of  those  the  supply  of  which 
has  been  reduced  by  war  operations.  Such 
rise  will  be  restrained,  but  not  prevented, 
with  respect  to  a  limited  number  of  com- 
modities by  governmental  price  fixing.  Yet 
the  general  trend  is  unaffected.  With  the 
termination  of  war  dislocation  this  rising 


AND  ECONOMIC  WELFARE  53 

movement  is  arrested  and  prices  tend  to 
decline.  But  the  descent  will  be  in  the 
nature  of  gradual  fall  rather  than  abrupt 
drop — a  fall  held  in  check  by  the  continua- 
tion of  heavy  government  borrowing,  and 
affecting  wholesale  prices  first  and  retail] 
living  costs  but  slowly  thereafter.  The| 
wage-earner  is  thus  caught  between  the 
upper  millstone  of  slackening  employment 
and  reduced  wages  and  the  lower  millstone 
of  sustained  prices.  Eventually  equilibrium 
will  return ;  but  the  interval  is  a  costly  and 
painful  one,  fraught  with  possibilities  of 
enduring  mischief  as  to  living  conditions 
and  moral  stamina. 

(4)  Unemployment,  lower  wages,  threat- 
ened living  standards  are  positive  injuries. 
But  the  largest  ill  which  the  wage-earner 
will  suffer  from  the  economic  sequel  of  war 
is  negative — the  impairment  of  the  state's 
power  to  engage  in  those  projects  of  social 
betterment  which  have  become  the  distin-l 
guishing  marks  of  economic  progress.  The 


54  AMERICAN  CITIZENSHIP 

'  Spread  of  education,  the  wiser  provision 
for  dependence,  programmes  of  social  in- 
surance, plans  for  reclamation  and  conser- 
vation, the  increase  of  public  utilities, 
better  highways,  improved  dwellings,  more 
libraries  and  galleries — all  that  wise  public 
policy  might  do  to  make  residence  in  town 
and  country  more  wholesome  and  more 
lovely;  all  these  are  deferred  for  decades 
to  come  by  the  incredible  squandering  of 
the  world  ^s  wealth  in  war  expenditure  and 
the  mortgaging  of  its  future  accumulation 
in  war  indebtedness.  The  injury  done 
extends  beyond  the  wage-earner,  to  his 
children  and  to  his  children's  children.  A 
fractional  part  of  the  billions  that  have 
been  wasted  might  have  realized  for  the 
present  happiness  and  the  future  better- 
ment of  the  world's  masses  things  beyond 
our  imagining.  Eapine,  murder,  mutila- 
,tion  are  the  spectacular  horrors.    This  is 

j  the  real  social  loss  of  the  war. 

It  is  against  this  background  that  the 
present  unrest  of  the  laboring  world  must 


AND  ECONOMIC  WELFARE  55 

be  projected.  Business  arrest  has  brought 
with  it  discharge  of  workmen,  part-time 
employment,  lessened  earnings  and  un- 
changed living  prices.  As  industry  strug- 
gles to  readjust  itself,  the  bolder  enter- 
prisers seek  to  achieve  lower  production 
costs  through  the  fancied  line  of  least 
resistance  —  resistance  to  demands  for 
higher  money  wages.  Beset  from  two 
quarters — lessened  employment  and  wage 
loss — the  laborer,  remembering  what  he 
had  during  the  war  and  how  he  won  it, 
backs  against  the  wall.  His  counter 
proposals  are  in  lieu  of  labor  discharge, 
shorter  working  hours;  instead  of  reduc- 
tion in  real  wages,  lower  profits  and  higher 
selling  prices.  The  stage  is  set  for  indus- j 
trial  conflict. 

In  casting  about  for  a  wise  social  policy 
in  this  state  of  affairs,  it  is  vital  to  remem- 
ber that,  although  more  frequent  and  per- 
haps more  intense  in  periods  of  business 
change  labor  disputes  are  a  consequence 
not  of  the  recurring  intensity,  but  of  the 


56  AMERICAN  CITIZENSHIP 

essential  form  of  modern  industry.  Periods 
of  readjustment  offer  greater  occasion  and 
tactical  opportunity;  they  do  not  create 
real  cause.  The  stirring  of  the  wage- 
earner  is  an  habitual  element  in  modem 
industrial  life — more  conspicuous  at  certain 
times  than  at  others,  but  always  present. 

Moreover,  such  discontent  exists  as  a 
I  social  phenomenon  quite  apart  from  the 
bitterness  traceable  to  poverty,  and  from 
the  unrest  bom  of  radicalism.  The  com- 
plaint of  the  working  poor — those  whose 
wage  income  is  less  than  enough  for  decent 
and  wholesome  life — is  a  part  of  the  larger 
problem  of  poverty.  The  discontent  of 
working  class  radicals — those  to  whom 
social  reconstruction  seems  practical  and 
desirable — ^belongs  to  the  discussion  of 
economic  specifics.  The  labor  problem 
proper  lies  intermediate.  It  is  constituted 
of  the  restlessness  of  working  classes  to 
secure  more  favorable  terms  of  employ- 
ment, when  the  impulse  is  neither  the  sting 
of  poverty  nor  the  lure  of  utopia. 


AND  ECONOMIC  WELFARE  57 

The  concern  of  society  in  this  disquiet  is 
great  and  direct.  It  operates  as  a  repres- 
sive influence  upon  industry  and  enterprise. 
It  entails  heavy  expenditure  by  workmen 
and  employers  in  preparation  for  strife. 
It  involves  recurring  strikes  and  lock-outs 
with  enormous  wastes  of  interrupted  pro- 
duction and  demoralizing  toleration  of 
violence  and  riot.  It  is  the  counterpart  in 
the  industrial  world  of  militarism  and  war- 
fare in  international  affairs. 

Employers'  associations  and  trade 
unions,  the  devices  of  collective  bargain- 
ing, wage  agreements,  mediation  and 
arbitration  have  affected  the  manner  in 
which  this  strife  is  carried  on;  they  have 
not  removed  its  occasion  nor  prevented  its 
renewal.  Society  is  still  harassed  by  the 
struggles  of  unorganized  or  organized 
laborers  to  secure  what  are  or  what  are 
conceived  to  be  more  favorable  terms  of 
employment,  in  face  of  the  resistance  of 
individual  or  grouped  employers. 

The  occasion  of  such  disputes  is  various — 


58  AMERICAN  CITIZENSHIP 

wage  demands,  union  recognition,  shorter 
hours,  shop  rules,  jurisdictional  conflicts. 
The  United  States  Bureau  of  Labor  classi- 
fied the  36,757  strikes  in  the  United  States 
in  the  twenty-five  years,  1881-1905,  accord- 
ing to  fourteen  distinct  or  grouped  causes^) 
and  the  record  of  current  strikes  published' 
by  the  same  agency  found  some  eleven 
causes  responsible  for  79  strikes  in  Decem- 
ber, 1915.^^  The  Massachusetts  Bureau  of 
Statistics  assigned  the  294  strikes  occur- 
ring in  that  state  in  1912  to  seven  principal 
and  nineteen  sub-grouped  causes,^^  and  the 
New  York  State  Department  of  Labor 
similarly  allotted  the  124  disputes  begun 
in  1914  to  nine  principal  causes.^^ 

If  such  elaborate  classification  be  reduced 
to  a  simpler  grouping — disputes  due  (a) 
wholly  or  in  part  to  wage  demands  and  ^^ 
(b)  to  other  causes — ^we  find  that  in  the 
United  States  from  1881  to  1905,  40.7  per 
cent,  of  all  strikes  were  attributable  in 
whole  or  in  part  to  demands  for  increased 
wages,  and  that  the  corresponding  per- 


AND  ECONOMIC  WELFARE  59 

centages  for  the  strikes  in  the  United 
States  in  December,  1915,  in  Massachusetts 
in  1912  and  in  New  York  in  1914  were  55.7, 
53.4  and  36.3  per  cent.,  respectively. 

It  thus  appears  that  a  very  large  pro- 
portion of  the  labor  disputes  with  which 
n  industrial  community  is  beset  have  to 
0  with  wage  demands.  Over  and  above 
the  conflicts  growing  out  of  class  antag- 
onism and  personal  bias,  there  is  a  chronic 
recurrence  of  industrial  warfare  because 
of  an  apparently  irreconcilable  difference 
as  to  a  new  rate  of  wages. 

No  real  or  lasting  service  to  the  cause  of 
industrial  peace  is  rendered  by  clouding 
this  issue.  Industrial  distribution  is  in 
the  last  instance  the  opportionment  of  a 
definite  product.  The  loaf  is  of  given 
size;  if  a  larger  portion  be  assigned  one 
claimant,  a  smaller  remains  for  the  other. 
It  is  a  misleading  half-truth  to  declaim  as 
to  the  harmony  of  interest  between  labor 
and  capital — as  unsound  in  fact  and  as 
reactionary  in  effect  as  the  contentions  of 


60  AMERICAN  CITIZENSHIP 

older  generations  that  there  was  harmony 
between  the  traditional  insistences  of  dog- 
matic theology  and  the  modern  disclosures 
of  natural  science.  Certainly  it  is  to  the 
advantage  of  both  contending  parties  that 
the  loaf  be  larger — ^but  to  whatever  size  it 
may  be  augmented,  division  must  ensue 
and  the  gain  of  one  is  the  loss  of  another. 
In  a  word,  absolute  increase  may  for  a 
time  obscure;  it  cannot  correct  relative 
disparity. 

The  occasion  for  this  insistence  is  the 
recurrent  vogue  of  palliative  devices.  In 
the  swift  succession  of  changing  fashion, 
patronal  activities,  bonus  systems,  scien- 
tific management,  *  *  instinct  in  industry  ' ' 
have  figured  in  such  advocacy  far  beyond 
their  legitimate  province,  in  attempted 
avoidance  of  the  real  issue. 

The  factors  ultimately  responsible  for 
industrial  clash  are  the  lack  of  bargaining 
equality  between  employer  and  employed, \\ 
the  failure  of  prompt  resort  to  arbitral 


AND  ECONOMIC  WELFARE  61 

determination  in  labor  disputes,  and  the 
absence  of  an  accepted  wage  principle  for 
arbitral  use  in  wage  issues.  The  situation 
is  analogous  to  what  might  be  expected  to 
develop  in  conflicts  of  personal  rights  and 
property  interests  if  one  and  the  same 
party  were  habitually  armed  and  the  other 
bare-handed,  and  if  the  court  to  whose 
determination  the  controversy  —  through 
social  intervention  at  the  eleventh  hour — 
was  finally  referred,  should  be  governed  in 
its  decisions  neither  by  statutory  enact- 
ment, nor  by  common  law,  nor  by  judicial 
precedent. 

In  another  place  I  have  sought  to  make 
clear  that  the  relatively  weaker  position 
in  industrial  bargaining  of  the  individual 
wage-earner  as  compared  with  the  capi- 
talist employer  can  be  corrected  by  the 
organization  of  the  labor  supply  into  a 
comparatively  equal  unit :  ^^ 

**  The  necessity  for  concerted  action  on 
the  part  of  the  laborer  has  been  recognized 
almost  from  the  beginning  of  sound  think- 


62  AMEEICAN  CITIZENSHIP 

ing  in  the  field  of  economic  distribution. 
Even  before  the  advent  of  capitalism  and 
the  factory  system,  Adam  Smith  noted 
that  *  tacit,  but  constant  and  uniform  com- 
bination ^  of  employers,  and  the  consequent 
disadvantage  of  unorganized  workmen  in 
wage  disputes. ^^  With  the  repeal  of  com- 
bination laws  a  generation  later,  a  narrow 
economic  philosophy  sought  to  justify 
the  contemporary  disadvantage  of  wage- 
earners  in  industrial  bargaining  by  the 
concept  of  a  wage  fund,  with  its  implica- 
tion of  a  rigid  predetermined  rate  of  wages 
that  neither  trade  unions  nor  collective 
action  could  affect.  The  reaction  came, 
first,  in  admission  of  the  actual  achieve- 
ment of  trade-unionism,  then  in  recognition 
of  its  tactical  necessity  in  wage  bargaining, 
culminating  in  radical  reconstruction  of 
the  theory  of  wages.  From  the  time  of 
Longe  and  Thornton,  *  the  verdict  of  the 
economists, '  ^^  has  been  virtually  unani- 
mous in  insisting  that  a  necessary  assump- 
tion   of   free    competition   in   wage    con- 


AND  ECONOMIC  WELFARE  63 

tracting  is  the  organization  of  labor  for 
purposes  of  collective  bargaining.  In  1892 
it  was  possible  for  a  lay  witness  to  testify : 
**  After  about  tbree-quarters  of  a  centurj^ 
of  taboo,  trade  unions  had  now  for  a  dozen 
years  ceased  to  be  regarded  as  associations 
of  anardhistic  criminals.  * '  ^^  This  has  not 
involved  approval  of  all  the  policies  nor 
indorsement  of  many  of  the  devices  of 
modern  trade-unionism.  But  there  is 
essential  agreement  as  to  the  primary  con- 
tention, that  collective  bargaining  is  neces- 
sary for  the  workman  to  secure  as  wages 
at  least  that  part  of  the  product  of  industry 
which  free  competition  tends  to  award  him. 
**  Probably  less  than  one-third  of  the 
industrial  wage-earners  of  the  United 
States  are  organized  in  form  or  in  spirit 
for  purposes  of  collective  bargaining.  The 
remaining  two-thirds  receive  compensation 
for  their  services  upon  the  basis  of  indi- 
vidual bargaining,  ordinarily  under  term® 
of  disadvantageous  inequality  on  the  part 
of  the  employee.    If  regard  be  had  to  the 


64  AMERICAN  CITIZENSHIP 

entire  body  in  receipt  of  wages,  the  per- 
centage of  organization  is  probably  not 
greater  than  one-fifth. 

**  Under  such  conditions  the  wages  of 
most  workers  are  maintained  above,  or 
even  at  the  level  of,  economic  sufficiency 
only  by  the  competition  of  employers  and 
the  relative  scarcity  of  labor.  To  the  extent 
that  employers  act  in  concert,  tacit  or 
avowed,  or  that  the  labor  supply  is  con- 
gested locally  or  industrially,  or  that  an 
industrial  class  have  degenerated  into 
parasitic  dependence,  the  share  of  the 
wage-earner  sinks  to  the  poverty  line.  For 
the  great  body  of  those  in  receipt  of 
wages,  an  effectively  organized,  intelli- 
gently administered  trade-unionism  offers 
the  surest  remedy  against  capitalistic 
exploitation  and  social  parasitism.  In  so 
far  as  this  protection  does  not  exist,  the 
toiler  is  exposed  to  oppression  by  the 
enterpriser,  on  the  one  hand,  and  to  spoilia- 
tion  by  society,  on  the  other.'' 


AJSTD  ECONOMIC  WELFARE  65 

Bargaining  equality  involves  not  only 
an  arbitral  tribunal  but  a  principle  of  wage 
determination  for  the  final  settlement  of 
industrial  controversies  not  adjusted  by 
competitive  higgling.  It  is  in  this  way  that 
individual  redress  of  injury  has  been  dis- 
placed in  the  course  of  social  progress  by 
courts  of  justice,  and  that  the  wars  of 
nations  are  about  to  yield  to  a  league  of 
states.  In  the  absence  of  an  arbitral  court 
the  outcome  of  the  wage  dispute  is  deter- 
mined as  in  other  forms  of  warfare  by 
the  relative  strength  and  endurance  of  the 
contending  parties.  If  there  be  a  court 
and  no  code,  the  decision  is  in  the  nature 
of  compromise — the  usual  procedure  being 
the  easy  and  workable  device  of  *  *  splitting 
the  difference.''  A  decision  on  the  merits 
of  the  case  is  impossible  since  no  standard 
of  reference  obtains. 

This  has  been  the  experience  of  those 

who  have  been  brought  face  to  face  with 

the  task  of  wage  adjustment.^"^    The  Board 

of   Arbitration  in   the   1912   controversy 

5 


66  AMERICAN  CITIZENSHIP 

between  the  Eastern  Eailroads  and  the 
Brotherhood  of  Locomotive  Engineers 
sought  in  vain  for  '^  some  theoretical  rela- 
tion ' '  upon  which  to  base  their  award,  and 
ultimately  took  refuge  in  a  makeshift  com- 
promise.^^ The  sponsors  of  the ' '  industrial 
constitution/'  devised  in  1915  for  the 
settlement  of  the  bitter  labor  struggles  of 
the  Colorado  Fuel  and  Iron  Company, 
turned  from  ''  an  unthinkable  counsel  of 
despair  ' ' — that  *  *  there  is  no  way  out 
except  through  constant  warfare  between 
Labor  and  Capital  " — only  to  record  the 
conviction  that '  *  the  problem  of  the  equit- 
able division  of  the  fruits  of  industry  will 
always  be  with  us. ' '  ^^ 

Economic  science  has  been  unable,  up  to 
the  present  time,  to  supply  this  deficiency. 
Since  the  day  of  Adam  Smith  every  treatise 
on  political  economy  has  set  forth,  under 
the  caption  *  *  theory  of  wages  ' '  some 
concept  as  to  what  part  of  the  product 
of  industry  tends  to  be  paid  to  the  wage- 
earner    under    conditions    of    bargaining 


AND  ECONOMIC  WELFARE  67 

equality.    Suc^li  formulae  have  ranged  from 
**  cost  of  subsistence  ''  to  **  marginal  pro-  | 
ductivity/'     But   the   wage   doctrines   of  1 
political    economy    still    represent    philo- 
sophical hypotheses.     The  lack  and  fault 
of  statistical  material,  the  tolerance  and 
vogue  of  economic  theorizing  have  hindered   i 
the  analysis  of  actual  wage  rates  and  the   i 
recognition  of  a  natural  law  of  wages.^^ 

Even  had  such  a  result  been  attained, 
even  though  we  knew  to  What  principle 
wages  tended  to  conform — it  is  by  no  means 
clear  that  such  a  natural  standard  would 
be  acceptable.  If,  for  example,  the  conten- 
tion of  the  Marxian  socialists  were  true 
that  normal  wages  in  competitive  industry 
approximate  bare  subsistence,  it  is  incredi- 
ble that  any  arbitral  board  would  sustain  V 
this  standard  in  case  of  wage  dispute.        j 

Opposed  to  the  doctrine  of  natural  law 
in  wage  determination  is  the  principle  of 
social  expediency.  Briefly  stated,  this 
maintains  that  the  wages  paid  in  modern 
industry  should  attain  the  level  which  will 


AMERICAN  CITIZENSHIP 

realize  the  largest  social  good  as  consti- 
tuted of  the  well-being  of  wage-earners, 
enterprisers  and  consumers,  and  that  this 
criterion  should  determine  arbitral  awards 
in  wage  controversies.  The  essence  and 
form  of  this  socially  desirable  wage  rate 
brings  us  to  the  crux  of  the  problem.^^ 

It  is  obvious,  in  the  first  place,  that  an 
identical  rate  paid  in  different  occupations, 
on  the  one  hand,  or  to  different  workmen 
in  the  identical  occupation,  on  the  other 
hand,  is  fanciful.  A  century  and  a  half 
ago  Adam  Smith  ascribed  the  difference  in 
wages  in  various  trades  to  the  agreeable- 
ness  or  disagreeableness  of  the  employ- 
ments themselves,  the  easiness  or  cheap- 
ness of  learning  them,  the  constancy  or 
inconstancy  of  employment,  the  small  or 
great  trust  which  must  be  reposed  and  the 
probability  or  improbability  of  success.^^ 
This  analysis,  with  minor  addition,  still 
serves  to  explain  and  justify  a  differing 
social  valuation  of  labor  service  in  various 
occupations. 


AND  ECONOMIC  WELFARE  69 

In  much  the  same  way  all  industrial 
observers  have  recognized  varying  degrees 
of  energy,  skill  and  intelligence  as  between 
laborer  and  laborer  in  the  same  occupation, 
for  which  society  makes  corresponding 
payment.  The  scale  of  wages  thus  repre- 
sents a  function  of  two  variables.  The 
labor  force  of  an  industrial  coromunity  is 
distributed  over  a  series  of  occupations  of 
ascending  social  importance,  while  within 
each  occupation  the  laborers  are  ranged  in 
a  gradation  of  personal  efficiency. 

There  is  thus  (1)  a  basic  wage,  paid  for 
unskilled  service;  (2)  a  trade  gradation, 
adjusted  to  the  social  estimate  put  upon 
superior  kinds  of  industrial  work,  and  (3) 
a  personal  differential,  measuring  degrees 
of  efficiency  within  each  occupation. 

Of  these  three  constituents  of  real  wages, 
the  third  element — representing  individual 
differences — lies  without  the  range  of 
social  concern.  In  the  case  of  piece-work 
pay,  the  question  does  not  even  arise; 
differences  in  individual  efficiency  register 


70  AMERICAN  CITIZENSHIP 

themselves  automatically.  In  the  case  of 
time-work  pay,  the  issue  turns  upon  the 
wages  demanded  by  the  average  workmen 
in  the  occupation — the  **  standard  rate  *' 
of  trade  union  practice,  less  than  which  no 
workman  may  accept  but  for  more  than 
which  the  exceptional  artisan  is  free  to 
engage. 

Wage  controversies  and  arbitral  awards 
centre  about  the  first  two  elements — the 
basic  rate  and  the  trade  gradation.  The 
essential  questions  are :  what  is  the  proper 
wage  for  unskilled  day  labor,  and,  this 
being  determined,  how  much  more  than 
such  minimum  is  the  artisan  in  a  skilled 
trade  or  occupation  entitled  to  receive? 

The  principle  which  at  this  time  seems  to 
have  most  to  commend  it  both  from  the 
standpoint  of  economic  practicability  and 
social  advantage  is  the  doctrine  of  a  pro- 
gressive standard  of  life,  with  a  base  line 
of  minimum  requirement.  This  means  that 
a  disputed  wage  scale  should  be  determined 
by  the  arbitral  body  to  which  it  has  been 


AND  ECONOMIC  WELFARE  71 

referred  at  that  level  which  will  permit  the 
industrial  group  involved  to  maintain  its 
accustomed  standard  of  life — assuming 
this  to  be  at  least  at  or  above  a  necessary 
minimum  —  together  with  some  addition 
for  the  general  social  progress  attained 
since  the  time  of  last  fixture.  As  to  the 
basic  rate,  the  least  skilled  class  of  labor 
regularly  employed  in  industry  should  be 
paid  as  wages  at  least  enough  to  make 
possible,  in  the  long  run,  decent,  self| 
suporting  existence  for  the  average  worki 
man  and  those  necessarily  dependent  upon 
him.  As  to  the  trade  gradation,  the  more 
favorable  standard  of  life  enjoyed  by  any 
skilled  group — as  compared  with  the  basic 
rate — should  be  retained  as  an  approxi- 
mate measure  of  the  greater  social  utility 
of  that  particular  service. 
)^An  arbitral  board  would  thus  refuse  to 
sanction  a  reduction  of  wages  below  pre- 
vailing rates,  if  so  determined,  and  would, 
on  the  other  hand,  award  an  increase 
demanded  by  reason  of  the  greater  money 


72  AMERICAN  CITIZENSHIP 

cost  of  those  things  upon  which  the  wage 
income  is  spent.  In  economic  phrase,  real 
wages  would  at  least  be  maintained  even 
though  money  wages  be  increased. 

We  have  left  unanswered  the  most  per- 
plexing element  in  the  problem  —  w^hat 
increase  in  wages  may  the  laborer  prop- 
erly claim  as  his  share  in  general  social 
progress!  The  answer  is  easy  when  we 
have  to  do  with  a  period  of  active  business 
revival.  Profits  are  then  large,  labor  is  in 
active  demand,  the  industrial  outlook  is 
bright  and  wage  increases  are  voluntarily 
granted  or  easily  ceded  in  compromise 
amount. 

Far  more  difficult  of  adjustment  is  the 
laborer's  demand  in  times  of  normal  rather 
than  exceptional  business  activity.  Grant- 
ing the  general  propriety  of  an  increase, 
the  particular  amount  to  be  granted  in 
each  such  case  will  stand  in  some  definite 
relation  to  the  heightened  productivity  of 
the  industry  as  evidenced  by  larger  profits, 
greater  output,  or  lower  prices.    There  is 


AND  ECONOMIC  WELFARE  73 

no  universal  formula  and  the  actual  award 
will  call  for  competent  and  painstaking 
arbitral  determination.  But  the  difficulties 
are  of  a  kind  with  those  with  which  juris- 
prudence has  not  hesitated  to  grapple,  with 
substantial  and  acceptable  social  results. 

The  actual  procedure  implied  in  the  fore- 
going may  be  summed  up  as  follows: 
Every  industrial  dispute  involving  wage 
demands  should  be  referred  by  pressure  of 
public  opinion  and  provision  of  positive 
law,  to  mediating  effort  and  arbitral  deter- 
mination. The  final  arbitral  award  should 
be  based  upon  the  principle  of  a  progres- 
sive standard  of  life.  This  implies:  (1) 
there  should  be  no  sanction  of  wage  reduc- 
tion, other  than  the  withdrawal  in  periods 
of  business  reaction  of  the  bonus-like 
increases  associated  with  abrupt  business 
revival;  (2)  the  wages  of  unskilled  labor 
should  be  at  least  enough  to  maintain 
decent  family  existence;  (3)  the  wages  of 
more  skilled  groups  of  workmen  should  be 
enough  to  maintain  the  standard  of  life 


74  AMERICAN  CITIZENSHIP 

enjoyed  by  the  most  favored  groups  of  like 
social  utility;  (4)  in  the  foregoing  regard 
should  be  had  to  real,  that  is,  commodity 
and  service  wages,  and  not  to  nominal, 
that  is,  money  wages;  (5)  wage  increases 
demanded  on  the  score  of  general  social 
progress  should  be  granted  in  some  rela- 
tion to  the  heightened  productivity  of  the 
industry  in  question.  ^ 

The  adoption  of  this  program  carries 
with  it  no  rule-of- thumb  solution  of  indus- 
trial strife.  But  for  a  considerable  propor- 
tion of  such  disputes  —  probably  no  less 
than  one-half  —  it  offers  in  lieu  of  outright 
warfare  or  makeshift  compromise  an 
economically  sound,  socially  acceptable 
principle  of  adjustment  which  arbitral 
discretion  may  forthwith  apply  and  ulti- 
mately develop  into  a  code  of  wage  award. 
For  the  large  proportion  of  labor  contro- 
versies not  turning  upon  wage  demands, 
such  a  procedure  will  at  least  encourage 
like  resort  to  arbitral  determination  and 
gradual  acceptance  of  a  socially  service- 
able principle  of  award. 


AND  ECONOMIC  WELFARE  75 

In  the  matter  of  collective  bargaining,  in 
the  arbitral  determination  of  labor  disputes 
and  in  the  validation  of  the  standard  of  life 
as  a  wage  principle — the  industrial  expe- 
rience of  the  war  years  have  resulted 
in  notable  progress. ^^  As  to  collective 
bargaining,  the  device  of  a  local  shop  com- 
mittee has  been  planted  ^*  so  well  and  so 
broadly  throughout  industry — as  hardly  to 
seem  eradicable.  *  *  ^^  The  arbitral  adjust- 
ment of  wage  differences  is  in  practice 
a  necessary  corollary  of  the  waiver  of 
primary  economic  weapons  and  of  a  joint 
covenant  as  to  uninterrupted  production. 
In  one  form  or  another  such  procedure 
obtained  over  a  great  part  of  war-time 
industry.  Different  in  form  and  in  effective- 
ness, marred  by  occasional  refusal  or  non- 
compliance, the  actual  mechanism  played 
an  immense  part  in  the  industrial  mobiliza- 
tion of  the  nation. 

A  somewhat  less  sweeping  statement  is 
possible  as  to  the  use  in  wage  awards  of  a 
standard  of  life,  turning  upon  a  decent 


76  AMEEICAN  CITIZENSHIP 

subsistence  minimum  in  the  lower  levels 
and  upon  the  increased  cost  of  living  in  the 
higher.  The  evidence  is  but  partly  collected 
and  but  imperfectly  analyzed.  But  it  is 
clear  that  in  important  awards,  the  Rail- 
road Wage  Commission  award  of  April  30, 
1918,  and  in  the  various  awards  of  the 
National  War  Labor  Board,  the  principle 
was  definitely  used  as  the  basis  of  settle- 
ment.^^ 

The  war  drum  beats  no  longer — in  tlie 
market  place  as  in  the  battle  ground.  The 
strain  has  passed,  and  with  it  many  of  the 
old  sanctions.  There  is  the  travail  of  read- 
justment, and  keen  competitive  intensity 
instead  of  patriotic  cooperation.  In  this 
industrial  **  Devil  take  the  hindmost,"  is 
the  wage-earner  doomed  to  lo|se  a  large 
part  of  his  strategic  gains — collective  bar- 
gaining, arbitral  adjustment,  living  wage? 
*  *  Demand  and  supply ' '  comes  the  grim 
answer  from  one  quarter: 


AND  ECX)NOMIC  WELFAEE  77 

"  And  the  kilns  and  the  curt-tongued  mills  say  Go. 
There's  plenty  that  can,  if  you  can't:  we  know. 
Move  out,  if  you  think  you're  underpaid. 
The  poor  are  prolific;  we're  not  afraid; 
Trade  is  trade."  ^ 

But  the  challenge  clatters  as  an  outworn 
creed,  not  to  be  reviled  as  *  *  a  pig  philoso- 
phy ' ' ;  ^"^  but  to  be  calmly  put  aside  as  men 
give  over  things  of  a  past  day.  A  great 
captain  of  industry  has  spoken  of  **  the 
standpatters,  who  ignore  the  extraordinary 
changes  which  have  come  over  the  face  of 
the  civilized  world  and  have  taken  place  in 
the  minds  of  men;  who,  arming  themselves 
to  the  teeth,  attempt  stubbornly  to  resist 
the  inevitable  and  invite  open  warfare  with 
the  other  parties  in  industry ;  and  who  say, 
**  What  has  been  and  is,  must  continue  to 
be — ^with  our  backs  to  the  wall  we  will  fight 

it  out  along  the  old  lines  or  go  down  in 
defeat?  "38 

Of  another  period  of  readjustment 
Francis  Place  wrote,  in  moving  words, 
long  after  he  had  left  its  miseries  behind : 
*'  I  have  seen  a  vast  many  such,  who  when 


78  AISIERICAN  CITIZENSHIP 

the  evil  day  has  come  upon  them,  have  kept 
on  working  steadily  but  hopelessly,  more 
like  horses  in  a  mill,  or  mere  machines  than 
human  beings ;  their  feelings  blunted,  poor 
stultified  moving  animals,  working  on,  yet 
unable  to  support  their  families  in  any- 
thing like  comfort ;  frequently  wanting  the 
common  necessaries  of  life,  yet  never 
giving  up  until  *  misery  has  eaten  them  to 
the  bone,'  none  knowing,  none  caring  for 
them ;  no  one  to  administer  a  word  of  com- 
fort, or,  if  an  occasion  occurred  which 
might  be  of  service  to  them,  none  to  rouse 
them  to  take  advantage  of  it;  all  above 
them  in  circumstances  calumniating  them, 
classing  them  with  the  dissolute,  the  profli- 
gate, and  the  dishonest,  from  whom  the 
character  of  the  whole  of  the  working 
people  is  taken. ''^^ 

Not  the  fear  but  the  faith  of  men  will 
keep  society  from  such  things  in  the  coming 
years.  Let  so  much  at  least  be  salvaged 
from  the  welter  of  the  world's  blood  and 
treasure. 


THE  SINEWS  OF  PEACE 


in 

THE  SINEWS  OF  PEACE 

There  is  fervent  agreement  in  the  public 
mind  as  to  the  obloquy  properly  attaching 
to  matters  of  taxation.  Literature  is  illum- 
inated by  such  objurgations  and  history 
has  more  than  once  been  deflected  by  their 
entry.  Something  of  this  disfavor  has 
grown  out  of  the  manner  in  which  taxes,  in 
times  past,  have  been  collected.  Macauley 
declared  that  **  a  farmer  of  taxes  is  of 
all  creditors  proverbially  the  most  rapa- 
cious,^'^ and  Adam  Smith,  enriching 
philosophic  calm  with  vigorous  phrase, 
maintained  as  to  tax-gatherers  that  *  *  the 
uncertainty  of  taxation  encourages  the 
insolence  and  favours  the  corruption  of  an 
order  of  men  who  are  naturally  unpopular, 
even  where  they  are  neither  insolent  nor 
corrupt. ' '  2 

Sometimes  the  particular  form  of  tax 

6  81 


82  AMEEICAN  CITIZENSHIP 

has  been. the  object  of  wrath.  The  remark- 
able philosopher  and  scientist,  member  of 
that  notable  company  of  physician-econo- 
mists in  which  Petty,  Mandeville,  Barbon 
and  Locke  figure,  whose  versatility  is  sug- 
gested by  the  mere  signature  to  his  *  *  Lec- 
tures on  the  Elements  of  Political  Econ- 
omy ' '  published  in  Columbia,  S.  C,  in 
1829— *^M.D.,  President  of  the  South 
Carolina  College  and  Professor  of  Chem- 
istry and  Political  Economy  ' ' — ^Thomas 
Cooper,  taking  a  long  back  swing  for  a  free 
trade  clout,  declared:  **  Suppose  a  man 
robbed,  is  he  not  the  poorer?  Why?  Be- 
cause he  loses  his  money  without  receiving 
value  in  return.  Where  is  the  difference 
to  the  individual  when  he  pays  a  tax?  To 
be  sure  the  equivalent  is,  or  is  said  to  be, 
the  supply  of  national  wants;  but  this 
extends  no  further  than  the  smallest 
amount  of  taxation  necessary  for  the 
purpose:  all  the  rest  is  of  the  nature  of 
robbery. ' '  ^ 

So,  too,  the  most  competent  writer  on 


AND  ECONOMIC  WELFARE  83 

American  taxation  has  appraised  in  terms 
not  conducive  to  popular  regard  the  fiscal 
device  upon  which  almost  every  State,  city 
and  minor  civil  division  of  the  Union  relies 
for  its  essential  revenue:  **  It  puts  a 
premium  on  dishonesty  and  debauches  the 
public  conscience ;  it  reduces  deception  to  a 
system,  and  makes  a  science  of  knavery ;  it 
presses  hardest  on  those  least  able  to  pay 
it;  it  imposes  double  taxation  on  one  man 
and  grants  entire  immunity  to  the  next. 
In  short,  the  general  property  tax  is  so 
flagrantly  inequitable,  that  its  retention 
can  be  explained  only  through  ignorance  or 
inertia. '  ^  * 

On  the  other  hand,  more  than  one  lance 
has  been  broken  in  support  of  the  social 
and  economic  advantage  of  taxation.  Some- 
time the  reported  gain  has  been  specific. 
David  A.  Wells  tells  us  that  when  the 
internal  revenue  tax  on  distilled  spirits 
was  increased  in  1862-65  from  20  cents  to 
$2  per  gallon:  **  The  popular  hair  prepara- 
tions into  which  alcohol  entered  largely  as 


84  AMEEICAN  CITIZENSHIP 

a  constituent  vanished  from  the  market; 
and  manufacturers  of  patent  medicines 
and  cosmetics  generally  abandoned  their 
old  preparations  and  adopted  new  ones  '  ^ — 
and  that :  ^ '  The  manufacturer  of  horse 
medicines,  who  used  50,000  gallons  of 
spirits  in  1863,  woefully  testified  in  1865 
that  his  business  was  destroyed."^ 

More  often  the  imputed  advantage  has 
been  general.  Writers  of  the  seventeenth 
and  eighteenth  centuries  urged  that  taxes 
on  the  necessaries  of  life  gave  **  a  great 
stimulus  toward  an  improvement  in  the 
condition  of  the  laborer,  in  sobriety,  care- 
fulness and  efficiency."®  And  to  provide 
for  lihe  other  contingency  David  Hume, 
writing  in  1753,  observed  that :  *  *  Where 
taxes  are  moderate,  are  laid  on  gradually, 
and  affect  not  the  necessaries  of  life — such 
difficulties  often  serve  to  excite  the  indus- 
try of  a  people,  and  render  them  more 
opulent  and  laborious,  than  others,  who 
enjoy  the  greatest  advantages. '*  "^ 

Whatever  illusions  may  have  existed  as 


AND  ECONOMIC  WELFARE  86 

to  taxes  and  disguised  blessings  were 
effectually  dispelled  by  the  fiscal  expe- 
riences of  the  Napoleonic  contest.  In  1817 
David  Eicardo  summed  up  the  matter 
squarely  in  a  dictum  from  which  there  has 
since  been  little  dissent :  *  *  There  are  no 
taxes  which  have  not  a  tendency  to  impede 
accumulation,  because  there  are  none  which 
may  not  be  considered  as  checking  produc- 
tion, and  as  causing  the  same  effects  as  a 
bad  soil  or  climate,  a  diminution  of  skill  or 
industry,  a  worse  distribution  of  labour, 
or  the  loss  of  some  useful  machinery ;  and 
although  some  taxes  will  produce  these 
effects  in  a  much  greater  degree  than 
others,  it  must  be  confessed  that  the  great 
evil  of  taxation  is  to  be  found,  not  so  much 
in  any  selection  of  its  objects,  as  in  the 
general  amount  of  its  effects  taken  collec- 
tively. ' '  ^ 

The  experience  of  the  United  States  in 
matters  of  revenue  and  the  obligations  of 
the  American  citizen  as  to  federal  taxation 


86  AMERICAN  CITIZENSHIP 

have  been  kaleidoscopic  in  change  and  tre- 
mendous in  import  since  1914.  In  these 
four  years  and  a  half  the  successive  phases 
of  American  involvement  in  the  world 
war  —  neutrality,  belligerency,  readjust- 
ment— have  been  as  sharply  defined  and  as 
clearly  reflected  in  public  finance  as  in 
national  industry  and  in  social  economy. 

From  the  outbreak  of  the  war  in  August, 
1914,  to  the  entry  of  the  United  States  into 
the  struggle  in  April,  1917,  our  problem 
was  to  replace  accustomed  sources  of 
revenue  which,  with  the  international 
blockade  and  the  swift  passing  of  Europe 
into  an  armed  camp,  had  dried  up  almost 
over  night,  with  new  fiscal  devices  that 
would  both  supply  the  gap  in  the  nation's 
budget  and  at  the  same  time  provide,  even 
though  inadequately,  for  possible  eventu- 
alities in  our  relation  to  the  international 
situation.  From  the  events  immediately 
preceding  the  passage  of  the  joint  resolu- 
tion by  Congress  on  April  6, 1917,  declaring 
that  a  state  of  war  with  the  Imperial  Ger- 


AND  ECX)NOMIC  WELFARE  87 

man  Govermnent  had  been  forced  upon  the 
United  States,  up  to  the  granting  of  the 
armistice  in  November,  1918,  our  concern 
was,  first,  to  determine  what  part  of  the 
colossal  expenditures  which  the  Treasury- 
was  called  upon  to  meet  should  be  defrayed 
by  taxation  rather  than  by  borrowing ;  and, 
second,  to  devise  and  impose  the  particular 
taxes  necessary  for  this  purpose.  From 
the  cessation  of  active  hositilities  through 
the  signing  of  the  formal  peace  treaty  up 
to  a  point  still  in  remote  prospect,  our  task 
is  and  will  be  to  provide  revenue  sufficient 
for  the  huge  totals  of  war  commitments 
and  demobilization  costs,  and  to  do  this 
with  the  economic  life  of  the  nation  in  the 
stress  and  travail  of  after-war  readjust- 
ment. 

Our  minds  have  become  so  dulled  to 
what  a  few  years  ago  would  have  seemed 
incredible  magnitudes  that  it  is  not  easy 
to  grasp  the  changes  which  the  past  four 
years  have  wrought  in  the  nation  ^s  tax 
revenue.    In  the  fiscal  year  1913-1914  the 


88  AMERICAN  CITIZENSHIP 


' '  total  ordinary  receipts  ' '  of  the  Treasury 
were  $734,673,166;  in  1914-1915,  $697,910,- 
827;  in  1915-1916,  $779,664,552,  and  inV 
1916-1917,  $1,118,174,126.  In  1917-1918 
this  had  shot  up  to  $4,174,010,585,  and 
in  1918-1919,  had  the  war  continued,  the 
prohable  aggregate  would  have  been 
$8,000,000,000.  Even  with  hostilities  sus- 
pended before  the  fiscal  year  was  half  over, 
the  actual  receipts  for  1918-1919  were  some 
$4,500,000,000.  In  other  words,  the  country 
is  now  paying  as  much  in  taxation  every 
eight  weeks  as  it  did,  before  the  world  was 
set  ablaze,  each  year.^ 

Nor  is  the  prospect  of  early  or  substan- 
tial relief  encouraging.  The  Secretary  of 
the  Treasury  estimates  that  for  the  fiscal 
year  1919-1920  taxation  should  supply 
$5,200,000,000.10  Many  things,  political  and 
economic,  may  transpire  to  affect  this  fore- 
cast. But  plan  and  fashion  as  we  will,  the 
country  is  in  for  a  proloned  period  of  rela- 
tively heavy  taxation. 


AND  ECONOMIC  WELFARE  89 

There  is  no  valid  escape  from  this  neces- 
sity. The  homely  rules  of  a  safe  private 
economy — spend  less,  earn  more,  or  go  into 
debt — are  at  bottom  the  maxims  of  secure 
public  financing.  Curtailment  in  expendi-  j 
ture,  increase  in  revenue,  incurring  of 
indebtedness — exhaust  the  possibilities  of 
sound  public  housekeeping. 

We  have  already  considered  the  vital 
importance  of  governmental  retrenchment 
with  regard  to  business  readjustment.  As 
a  part  of  the  country's  financial  program 
the  relation  is  direct.  The  abrupt  cessation 
of  hostilities  has  left  the  Treasury  bur- 
dened with  commitments  incident  to  a  war 
economy  and  now  devolving  upon  a  peace 
budget.  Even  though  the  knife  be  applied 
swiftly  and  heroically,  to  a  point  beyond 
which  injustice  and  hardship  would  be 
done,  there  will  still  remain  extraordinary 
charges  of  war-incurred  obligation.  More- 
over, the  final  settlement  of  returned  peace 
carries  with  it  new  disbursement.  The 
country  can  never  hope  to  return  to  its  old 


90  AMERICAN  CITIZENSHIP 

seclusion  in  the  family  of  nations.  Larger 
responsibilities  have  been  incurred,  calling 
for  heavy  outlay  in  preparation.  Even 
with  cautious  economy  it  seems  certain 
that  the  most  we  can  hope  for  will  be  some 
reduction  in  the  amount  of  this  prospective 
additional  burden.  There  will  be  cheese- 
paring attempted  in  other  directions,  if 
only  for  sentimental  effect.  But  the  results 
are  likely  to  be  counterbalanced  by  the 
normal  increase  in  governmental  require- 
ments. 

If  despite  all  practicable  retrenchment 
the  nation  will  be  obliged  to  spend  more 
even  after  the  return  of  peace  than  it  did 
before  the  advent  of  war,  heavier  taxation 
is  inevitable — not  indeed  as  severe  as  dur- 
ing the  period  of  war  disbursements,  but 
substantially  greater  than  in  the  pre-war 
period.  The  only  alternative  is  a  continua- 
tion of  deficit  financing.  Professor  Basta- 
ble  has  described  popular  borrowing  as 
*  *  an  agreeable  process. '  ^  ^^  Two  centuries 
ago  Pope  sang  of 


AND  ECONOMIC  WELFARE  91 

Blest  paper  credit!  last  and  best  supply!  " 

and  this  temptation  to  continue  defraying 
some  part  of  our  after-war  expenditure 
from  the  proceeds  of  further  loans  will 
inevitably  present  itself.  But  it  is  a 
vicious  policy  which  pursued  beyond  th( 
bounds  of  drastically  restricted  expendij 
tures  and  maximum  tax  revenue,  means) 
only  postponing  the  day  of  reckoning,  withi 
added  penalties  of  rationed  commercialj 
credit  and  delayed  deflation. 

Called  upon  then,  as  the  nation  will  be, 
in  the  coming  years  to  contribute  a  much] 
greater  sum  in  taxation  to  meet  an  inevit-/ 
ably  larger  public  expenditure,  what  atti-w 
tude  should  intelligent  citizenship  assume/ 
both  as  to  the  general  taxing  policy  to  be 
pursued  and  as  to  the  specific  tax  devices 
to  be  adopted. 

In  the  first  place,  let  us  clear  the  fore- 
ground by  a  frank  rejection  of  fiscal  oppor- 
tunism. "We  have  not  made  very  great 
progress  in  scientific  knowledge  of  taxa- 


92  AMEEICAN  CITIZENSHIP 

tion.  **  It  is  here  then  that  the  most  per- 
fect knowledge  of  the  science  [political 
economy]  is  required,"  wrote  David 
Eicardo  to  Hutches  Trower  ^^ — and  this 
perhaps  explains  our  shortcoming.  But 
some  things  we  do  know,  and  it  behooves 
us  to  hold  fast  to  that  which  we  have. 

An  *^  agnostic  ''  theory  implying  that 
any  exact  knowledge  of  tax  incidence  is 
hopeless,  **  a  diffusion''  theory  setting 
forth  that  any  tax  will  in  the  long  run  be 
evenly  distributed — are  veritable  hand- 
maidens of  legislative  disingenuousness,  of 
administrative  convenience  or,  more  sin- 
ister,  of  class  exploitation.  If  fiscal  expe- 
rience is  to  be  jettisoned  and  all  scientific 
doctrine  to  be  abandoned,  it  is  much  better 
to  do  this  under  the  time-honored  dictum 
*  *  pluck  the  goose  with  minimum  squawk, ' ' 
or  the  Bonnybrook  Fair  slogan,  **  when 
you  see  a  head  tax  it.'' 

As  a  matter  of  fact,  there  are  certain 
well  defined  fiscal  principles,  justified  by 
theoretical  analysis  and  verified  by  histori- 


AND  ECONOMIC  WELFAKE  93 

cal  experience,  which  can  properly  influ- 
ence wise  fiscal  policy.  They  are  not  of 
that  wrapped  and  tied  quality  for  which 
the  economic  practitioner  is  always  so 
pathetically  eager,  and  which  the  economic 
scientist  is  ordinarily  so  resolutely  unwill- 
ing to  supply.  But  they  indicate  a  true 
course,  warning  against  reefs  and  shoals, 
and  leaving  the  way  open  for  precise  reck- 
oning. 

In  the  first  rank  is  the  cardinal  doctrine 
that  tax  revenue  must  ultimately  come  from 
accumulated  capital,  customary  income  or 
a  new  surplus  made  available  by  increased 
production.  Of  the  three  possibilities  the 
third  conforms  closest  to  fiscal  wisdom. 
Taxes  which  are  finally  paid  out  of  accumu- 
lated capital  or  out  of  accruing  income  may 
be  desirable  in  the  interest  of  wealth  diffu- 
sion or  of  social  equalization.  They  will, 
to  some  extent,  be  inevitable  by  reason  of 
the  requirements  of  the  exchequer.  But  in 
so  far  as  they  are  used,  the  future  produc- 
tive power  of  the  country  is  impaired  as  to 


94  AMEEIOAN  CITIZENSHIP 

capital,  and  the  present  living  standards 
of  its  citizenry  reduced  as  to  income.  On 
the  other  hand,  if  an  accompaniment  of  the 
taxation  imposed  be  increased  production 
there  is  constituted  a  new  fund  from  out  of 
which  the  requisition  may  be  regarded  as 
ultimately  paid,  with  the  further  advantage 
of  an  enlarged  national  dividend. 

On  its  face  this  smacks  much  of  a  counsel 
of  perfection.  Even  if  it  were  possible  to 
find  taxes  which  would  neither  encroach 
upon  capital  nor  make  inroads  upon  income 
but  actually  encourage  greater  industry 
and  a  larger  national  dividend,  the  chance 
of  reconstructing  an  existing  fiscal  system 
to  this  end  would  be  inconsiderable.  For 
we  are  not  permitted  to  write  on  Petty 's 
**  white  paper. '^1*  Our  system  of  taxation 
is,  despite  its  abrupt  twists,  an  historical 
product,  largely  determined  by,  as  in  turn 
it  has  largely  determined,  the  nation's 
economic  growth. 

Complete  revision  may  be  fanciful.  But 
we    may    reasonably    hope    to    influence 


AND  ECONOMIC  WELFARE  95 

amendment  and  addition  and  above  all  to 
deflect  supplementary  financing  from  un- 
wise drift.  Such  negative  service  is  no 
mean  thing  in  a  period  of  emotional  urging 
and  swift  change.  The  state  like  the  indi- 
vidual is  tempted  with  get-rich-quick 
devices — ^fiscal  nostrums,  new  and  untried, 
or  old  and  revamped.  Herein  lies  the  use- 
fulness of  a  scientifically  accredited,  his- 
torically validated  canon  of  taxation.  If 
encroachment  upon  productive  capital  is 
economically  hurtful,  the  state  may  well 
hesitate  to  impose  a  direct  capital  levy 
even  for  so  worthy  a  purpose  as  the  extinc- 
tion of  war  incurred  indebtedness.  If 
deduction  from  income  operate  like  any 
other  economic  drag  to  reduce  the  sum  of 
social  enjoyment  and  to  check  capital 
accumulation,  sur-taxes  cease  at  least  to  be 
fiscally  virtuous  in  themselves.  This  is  no 
final  verdict  against  either  a  capital  levy 
or  the  maximum  schedule  of  an  income  sur- 
tax. Other  considerations,  political  and 
social,  will  enter  into  play.    Let  us  only  be 


96  AMERICAN  CITIZENSHIP 

sure  that  the  economic  element  is  given  due 
regard,  and  that  the  course  finally  elected 
represents  a  deliberate  calculus. 

In  matters  of  taxation  the  complement 
of  sound  incidence  is  wide  distribution. 
The  tax  burden  which  is  to  be  put 
upon  us  should  not  only  be  wisely  but 
generally  imposed.  With  mere  revision  of 
emphasis  this  may  be  read  into  Adam 
Smith's  fourth  maxim  that  **  the  subjects  '^ 
of  every  state — rather  than  any  particular 
group  of  them — ought  to  contribute  to  its 
support.^^ 

Universality  in  tax  contribution  is  com- 
monly urged  on  civic  rather  than  on  fiscal 
grounds.  Here  as  elsewhere  mankind  is 
peculiarly  sensitive  to  any  excitation  of  its 
*  ^  pocket  nerve. ' '  In  no  way,  it  is  con- 
tended, can  the  ordinary  citizen  be  so 
effectually  roused  to  a  sense  of  political 
obligation  or  made  to  concern  himself  so 
intelligently  with  civic  issues  as  by  the 
regular  presentation  of  a  tax  bill. 


AND  EC50N0MIC  WELFARE  97 

But  on  fiscal  grounds  alone  a  wide  distri- 
bution of  the  tax  burden,  to  the  point  even 
of  universal  contribution,  will  commend 
itself  to  an  enlightened  citizenry.  No  free 
people  ever  rebelled  against  evenly  dis- 
tributed taxation,  whatever  its  absolute 
amount.  Sir  William  Petty  made  this  clear 
two  centuries  ago :  *  *  Let  the  tax  be  never 
so  great,  if  it  be  proportionable  unto  all, 
then  no  man  suffers  the  loss  of  any  riches 
by  it. ' '  ^^  Democracy  realizes,  even  though 
inarticulately,  that  where  the  gift,  there 
the  burden.  It  will  chafe  under  a  crudely 
imposed  load ;  it  will  become  bitter  if  there 
be  gross  inequality.  But  let  the  humblest 
tax-payer  be  assured  that  there  is  to  pre- 
vail in  the  support  of  the  state  that  prin- 
ciple which  the  progress  of  the  race  has 
taught  him  works  out  best  in  all  asspciated 
effort — the  rule  of  *  *  tote  fair  ' ' — and  he 
will  assume  his  quota  with  nothing  worse 
that  the  degree  of  grumbling  which  in 
matters  of  taxation  is  the  symptom  of  a 
decent  self-respect. 
7 


98  AMERICAN  CITIZENSHIP 

The  practice  of  tax  exemption  has  under- 
gone a  curious  cycle  in  the  history  of  organ- 
ized society.  In  the  classical  world  the 
obligation  of  citizenship  was  military 
service,  and  tax  liability  the  badge  of  servi- 
tude. The  feudal  polity  had  little  occasion 
for  compulsory  revenue  until  the  rise  of 
statehood  encouraged  the  commutation  of 
service  into  charge.  With  the  recognition 
of  crown  prerogatives  and  the  sharper  defi- 
nition of  class  exemptions,  the  increasing 
fiscal  needs  of  the  state  were  transferred 
to  the  third  estate.  The  dawn  of  the  new 
industrial  era,  lighted  by  the  fire  of  politi- 
cal revolution,  found  the  main  charge  of 
state  support  everywhere  resting  upon  the 
mass  of  common  people. 

The  century  that  followed  was  destined 
to  witness  almost  a  complete  reversal  of 
the  tendency.  Justified  by  a  political 
economy  that  made  clear  the  futility  of 
taxes  upon  minimum  subsistence,  inspired 
by  a  social  humanitarianism  that  sought  to 
compensate  in  dynamic  vigor  for  belated 


AND  ECONOMIC  WELFARE  99 

appearance,  the  reaction  expressed  itself  in 
the  middle  of  the  century  in  the  repeal  of 
the  English  corn  laws  and  in  the  general 
incorporation  into  tax  codes  of  the  prin- 
ciples of  minimum  exemption. 

The  propriety  of  group  exemption  once 
admitted,  the  enlargement  of  the  class  and 
the  diversification  of  the  warrant  have  fol- 
lowed. If  toilers  in  receipt  of  bare  living 
wages  should  pay  no  taxes  whatever,  cer- 
tain sections  of  the  country  and  particular 
classes  of  producers  less  preferred  or  less 
fortunate  than  others  might  hope  at  least 
to  be  relieved  from  additional  burdens  of 
taxation.  Sectional  diversity,  congres- 
sional government  and  indirect  taxation, 
involving  '  *  compensatory  ' '  imposts,  have 
encouraged  the  tendency. 

Up!  up*  again!  ye  rents,  exalt  your  notes, 
Or  else  the  Ministry  will  lose  their  votes." 

The  consequence  has  been  to  make  the  task 
of  obtaining  additional  revenue  less  a 
matter  of  apportionment  and  distribution 


100  AMERICAN  CITIZENSHIP 

than  of  finding  a  hapless  group  of  taxables 
who  can  be  noiselessly  mulcted. 

Like  every  device  of  fiscal  preferment 
and  class  differential,  tax  exemption  in  this 
larger  and  less  valid  sense  works  its  own 
undoing.  The  basis  of  public  contribution 
is  narrowed,  sectional  opposition  is 
aroused,  class  hostility  is  accentuated  and 
the  whole  process  of  public  "contribution  is 
vulgarized. 

Universality  in  taxation  does  not  imply 
identical  imposition  nor  even  proportional 
contribution.  From  the  time  of  Adam 
Smith  fiscal  justice  has  been  conceived  as 
tax  payment  according  to  ability.^ ^  The 
maxim  that  every  man  should  contribute  to 
the  support  of  the  state  according  to  his 
faculty  is  embodied  in  our  constitutions 
and  bills  of  rights  side  by  side  with  pro- 
visions to  secure  freedom  of  speech  and 
trial  by  jury.  Eealized  at  first  in  a  propor- 
tional levy  upon  the  capital  value  of  real 
and  personal  property,  the  diversity  of 


AND  ECONOMIC  wi:LFA^K   *. :  •  {  ;  im  • 

wealth  forms  and  the  increase  of  intangible 
capital  evidences  made  of  the  general  prop- 
erty tax  an  utterly  inequitable  device  in 
developed  industrial  communities.  Its 
crude  injustice  was  only  avoided  by  a 
subtle  form  of  capitalization  whereby  intan- 
gible personal  property  acquired  a  higher 
capital  value,  relative  to  its  net  income,  by 
reason  of  popular  acquiescence  in  the 
escape  from  assessment  and  taxation  — 
actual  though  illegal — of  such  evidences  of 
ownership.  Falling  short  even  of  propor- 
tional contribution,  the  road  to  reform 
blocked  by  rigid  constitutional  bars — 
direct  taxation  in  the  United  States  had 
drifted  far  in  practice  from  the  principle 
of  payment  according  to  ability  which  the 
f ramers  of  our  political  creeds  in  the  flush 
of  eighteenth  century  philosophy  had  so 
finely  acclaimed. 

The  transition  came  with  the  successful 
entry  of  the  federal  government  into  the 
field  of  direct  taxation — direct  none  the 
less  though  the  word  was  inhibited.    In  lieu 


102  AMERICAN  CITIZENSHIP 

of  capital,  income  was  taken  as  the  criterion 
of  economic  ability.  But  of  far  greater 
importance,  progressivity  was  accepted  in 
place  of  proportionality  as  the  theory  of 
equal  contribution. 

Of  the  many  definitions  of  progression 
in  taxation  none  has  the  penetrating  suc- 
cinctness of  John  Stuart  Mill's :  *  ^ It  means, 
apportioning  the  contribution  of  each  per- 
son towards  the  expenses  of  government, 
so  that  he  shall  feel  neither  more  nor  less 
inconvenience  from  his  share  of  the  pay- 
ment than  every  other  person  experiences 
from  his. ' '  ^^  From  *  ^  the  early  legisla- 
tion of  Solon  down  to  the  present  time  '' 
progression  has  figured  in  fiscal  practice. 
That  which  has  been  written  for  and 
against  constitutes  a  veritable  literature, 
the  mere  historico-critical  examination  of 
which  at  the  hands  of  an  accomplished 
student  of  public  finance  has  required  a 
stout  volume  of  three  hundred  pages.^^ 

As  realized  in  the  war  revenue  legisla- 
tion of  the  United  States  progression  as  to 


AND  ECONOMIC  WELFARE  103 

income,  excess  profits  and  inheritance 
taxes  lias  meant  the  arrangement  of  the 
taxable  basis  into  ascending  groups  and 
the  imposition  of  successively  higher  per- 
centages upon  each  group — with  an  allow- 
ance of  the  lower  rates  upon  such  parts  of 
the  basis  as  were  included  within  the  corre- 
spondingly lower  groups.  We  have  no 
means  of  knowing  in  how  far  the  groupings 
and  the  rates  represented  a  deliberate 
attempt  to  conform  to  the  principle  of 
identical  sacrifice.  It  is  certain  that  this 
consideration  was  not  ignored.  Bearing 
in  mind  the  novelty  of  the  endeavor,  the 
urgency  of  the  requirement  and  the  hur- 
riedness  of  the  legislation  —  the  results 
attained,  in  this  particular  at  least,  are 
entitled  to  something  very  much  more  than 
the  reception  accorded  the  war  revenue 
measure  as  a  whole. 

The  defect  of  progressive  taxation  is  the 
difficulty  of  putting  its  principle  into 
proper  working  effect  in  consequence  of 
the  varied  sources  of  economic  income  and 


104  AMERICAN  CITIZENSHIP 

of  the  lack  of  any  practicable  measure  of 
personal  sacrifice.  Identity  of  sacrifice  is 
an  easy  phrase — just  as  is  *  *  tote  fair. ' ' 
But  how  shall  it  be  realized?  "What  shall 
be  the  stages  of  progression  and  what  the 
ascending  percentages  of  the  levy?  If 
incomes  of  $2,000  are  to  be  taxed  one  per 
cent.,  is  a  corresponding  burden  upon 
incomes  of  $5,000,  two  per  cent,  or  three 
per  cent.,  and  upon  incomes  of  $25,000,  five 
per  cent,  or  twenty-five  per  cent.  ?  Obviously 
these  are  not  the  ordinary  difficulties  of 
fiscal  technique  that  may  properly  be  left 
to  the  ingenuity  and  skill  of  the  tax  admin- 
istrator. They  fairly  raise  the  question 
as  to  whether  progression  is  not — pace 
the  philosophers  —  ^^  conceptual ''  rather 
than  ^ '  real. ' '  Grave  obstacles  such  as  these 
have  led  the  financial  expert — ^who  has 
made  the  subject  peculiarly  Eis  own — to 
conclude  that  although  *'  progression  of 
some  sort  is  demanded  from  the  standard 
of  ideal  justice,  the  practical  difficulties  in 
the  way  of  its  general  application  are  well 


AND  ECONOMIC  WELFARE  105 

nigh  insuperable.''  And  again,  ^^  it  is 
doubtful  whether  greater  individual  justice 
will  be  attained  by  a  system  of  progression 
than  by  the  simple  rule  of  proportion ;  and 
it  is  highly  questionable  whether  the  ideal 
advantages  of  progression  would  not  be 
outweighed  by  its  practicable  shortcom- 
ings. ' '  2^ 

The  American  citizen  will  be  reluctant — 
unwilling,  it  might  be  safely  ventured — to 
accept  this  conclusion.  If  it  be  true  that 
**  equality  of  taxation,  as  a  maxim  of 
politics  means  equality  of  sacrifice,"  and  if 
equality  of  sacrifice  entail  in  all  modern 
industrial  societies  progressive  contribu- 
tion, fiscal  progress  will  not  be  shunted  on 
to  a  wrong  track  by  reason  of  grades  and 
turns.  *^  This  standard,  like  other  stand-, 
ards  of  perfection,''  wrote  Mill  with  a  fine 
sanity,  *  *  cannot  be  completely  realized ; 
but  the  first  object  in  every  practical  dis- 
cussion should  be,  to  know  what  perfection 
is."  Knowing  what  perfection  is — he 
might  have  added — men  will  not  cease 
striving  for  it.^^ 


106  AMERICAN  CITIZENSHIP 

The  danger  to  be  guarded  against  in  the 
use  of  tax  progression  is  that  the  device 
be  extravagantly  employed  to  accomplish 
other  than  fiscal  ends — ends  attractively 
set  forth  in  such  phrases  as  **  diffusion  of 
wealth  ' '  and  ^  ^  social  equalization. ' '  Pro- 
gressive taxation  is  justified  not  on  the 
ground  that  large  incomes,  huge  industrial 
profits,  great  estates  are  a  menace  to  the 
public,  but  on  the  theory  that  the  ability  to 
contribute  to  the  support  of  the  govern- 
ment grows  more  rapidly  than  the  amount 
of  the  income  or  the  size  of  the  estate,  and 
that  only  by  graduated  rates  can  approxi- 
mation be  had  to  identical  sacrifice.^^ 

All  sound  opinion  is  in  agreement  that 
the  accumulation,  even  more  the  perpetua- 
tion of  colossal  fortunes  is  socially  unde- 
sirable, and  that  a  narrowing  of  the 
economic  gulf  would  enhance  the  nation's 
well-being.  But  the  remedy  lies  in  preven- 
tive rather  than  in  positive  treatment.  For 
the  evil  which  already  exists,  the  fiscal  use 
of  progression  is  likely  to  more  than  keep 


AND  ECONOMIC  WELFARE  107 

pace  with  the  healthy  advance  of  social 
opinion  as  to  wealth  distribution.  The 
'^  social  equalization  '^  theory  of  taxation 
is  a  Frankenstein  which  in  these  days  is 
not  likely  to  be  invoked. 

A  further  over-use  of  the  restrictive  pos- 
sibilities of  taxation  has  been  in  connection 
with  its  assumed  check  upon  popular  non- 
essential expenditure.^*  A  glaring  fact  in 
the  war  experience  of  the  United  States  as 
of  every  belligerent  state  has  been  the 
imperfect  appreciation  of  the  doctrine  that 
national  effectiveness  means  spending  less, 
quite  as  much  as  producing  more,  and  that 
every  unit  of  productive  force  required  in 
supplying  dispensable  needs — every  ounce 
of  raw  material,  fuel,  convertible  machin- 
ery engaged  in  making  things  and  services 
without  which  we  could  subsist — even  sub- 
sist comfortably — is  just  so  much  reduction 
of  the  nation's  war  power. 

Much  has  been  said  and  written  of  the 
usefulness  of  heavy  taxation  in  war  finance 
in  correcting  this  tendency,  and  such  is 


108  AMERICAN  CITIZENSHIP 

undoubtedly  the  case  if  taxation  be  widely- 
distributed  and  paid  for  from  income.  That 
part  of  the  national  dividend  surrendered 
to  the  state  in  taxation  which  would  other- 
wise have  been  needlessly  consumed  effects 
a  corresponding  release  of  productive 
energy  for  the  national  defense.  But  it  is 
equally  certain  that  the  same  result  can 
attend  wisely  devised  public  borrowing  and 
that  the  largest  part  of  that  which  the 
Treasury  receives  from  loans  can  come 
from  the  income  rather  than  from  the 
credit  of  those  who  subscribe  to  bonds. 
This  is  the  distinction  between  **  credit 
loans  ''  and  **  savings  loans. '^  If  bonds 
are  paid  for  out  of  current  income  that 
would  othermse  have  been  spent  upon  non- 
essentials the  result  is  the  same,  as  to  the 
release  of  industrial  labor  and  capital  for 
war  service  as  though  this  sum  had  been 
taken  in  taxation.  Indeed,  to  the  extent 
that  the  war  taxes  are  of  so  restricted  a 
kind  and  rest  in  the  main  upon  so  limited 
a  class  that  payments  will  be  effected  by 


AND  ECONOMIC  WELFARE  109 

the  aid  of  bank  loans  or  at  the  expense  of 
further  savings,  there  is  strong  likelihood 
that  the  resultant  curtailment  of  unneces- 
sary production  will  be  less  than  that 
growing  out  of  a  widely  distributed  bond 
issue  paid  for  out  of  current  savings. 

It  is  possible  to  apply  this  experience 
with  advantage  to  the  problem  of  after- 
war  financing.  We  have  already  discussed 
the  importance  of  public  retrenchment  and 
private  thrift  in  relation  to  current  expend- 
iture. But  the  nation  must  also  repay  what 
it  has  borrowed.  The  more  completely 
the  processes  of  debt  reduction  and  debt 
extinction  can  proceed  by  a  diversion  of 
income  from  spending  to  payment,  the 
more  rapidly  will  the  wastage  and  wear  of 
war  be  repaired.  This  is  even  more  impor- 
tant if  after- war  reconstruction  entail — as 
it  is  certain  to  do  in  this  country  or  else- 
where— further  funding  and  refunding 
operations.  Unless  there  be  a  diversion 
of  income — voluntary  or  enforced — from 
spending  to  debt  discharge,  the  mischievous 


110  AMERICAN  CITIZENSHIP 

war  cycle  of  credit  expansion  and  price 
inflation  is  likely  to  be  again  renewed. 

Taxation  as  snch  offers  no  automatic 
escape  from  this  evil.  It  would  probably 
be  better  to  continue  our  large  debt  intact 
with  a  very  gradual  amortization  hereafter 
or  to  refund  it  at  a  lower  interest  rate  by 
the  continuing  *  *  over  the  counter  ' '  sale 
of  popular  bonds  paid  for  from  out  the 
nation's  income — than  to  attempt  quick 
liquidation  by  drastic  taxation  certain  to 
involve  further  resort  to  bank  borrowing 
and  credit  expansion.  Better  than  either 
of  these  is  courageous  but  not  reckless 
amortization  by  means  of  widely  distrib- 
uted, equitably  imposed  taxation — the 
incidence  of  which  shall  be  upon  increased 
production  or  at  least  current  revenue  and 
not  upon  working  capital  or  bank  reserves. 

These,  then,  are  the  principles  to  which 
American  revenue  policy  in  the  years  that 
lie  immediately  before  us  should  seek  to 
conform  and  in  the  enforcement  of  which 


AND  ECONOMIC  WELFARE  111 

tlie  efforts  of  a  wise  citizenship  may  prop- 
erly be  expended :  sound  incidence,  univer- 
sal contribution  and  progressivity — taxes 
which  shall  fall,  in  so  far  as  may  be,  upon 
an  enlarged  national  dividend  rather  than 
upon  productive  capital  or  upon  current 
income,  which  shall  rest  upon  the  entire 
citizen  body,  but  with  such  a  distribution 
of  burdens  as  to  require  from  every  man — 
rich  or  poor,  capitalist  or  wage-earner — a 
sacrifice  of  like  relative  intensity.  How- 
ever, we  fall  short,  a  fiscal  program  of  this 
sort — of  any  sort — is  infinitely  better  than 
opportunism  or  convenience.  There  is  as 
definite  a  place  for  idealism  in  the  economy 
of  the  state  as  in  its  government  and  in  its 
administration.  Fiscal  justice  is  on  all 
fours  with  political  equality  and  civic 
integrity.  It  is  not  a  corollary  of  democ- 
racy; it  is  democracy. 

And  now  I  am  done.  For  my  parting 
word,  may  I  hark  back  again  to  Sir  William 
Petty,  the  many-sided  genius  of  late  seven- 


112  AMERICAN  CITIZENSHIP 

teenth  century  economics :  ^  ^  say  I  what  I 
will  or  can,  things  will  have  their  course, 
nor  will  nature  be  cozened :  wherefore  what 
I  have  written  (as  I  said  before)  was  done 
but  to  ease  and  deliver  myself,  my  head 
having  been  impregnated  with  these  things 
by  the  daily  talk  I  hear  about  advancing 
and  regulating  Trade,  and  by  the  murmurs 
about  Taxes,  &c/'25 

*  *  I  wish  for  my  own  part  there  were  no 
such  thing  as  Political  Economy,' '  lamented 
Archbishop  Whately — hastening  to  add 
that  it  was  the  occasion  not  the  thing  that 
he  would  have  vanish.  Only  the  Spectator's 
devil  could  transmute  ^^  Political  Arith- 
metic * '  into  * '  Poetical  Arithmetic. ' '  ^e 
Ardent  devotee  that  he  was,  Joseph  Massie 
confessed  that  ^^  it  is  not  easy  for  a  Man 
to  figure  to  himself  a  literary  Pursuit  more 
disagreeable  than  is  the  Study  of  Com- 
merce as  a  national  Concern. "  ^"^  If  much 
of  what  I  have  said  has  seemed  dull, 
remember  WhewelPs  solemn  apology: 
*  *  they  are  commonplaces  which  young  men 


AND  ECONOMIC  WELFARE  113 

of  rank,  such  as  those  to  whom  these 
Lectures  were  addressed,  ought  to  know, 
and  which  they  were  not  likely  to  learn 
unless  they  were  brought  before  them  in 
some  such  way  as  this.^'^^  Finally,  if 
everything  else  fail,  let  there  be  solace  in 
Walter  Bagehot's  assurance  that  **  no  real 
English  gentleman,  in  his  secret  soul,  was 
ever  sorry  for  the  death  of  a  political 
economist;  ...  he  may  be  useful,  as 
drying  machines  are  useful ;  but  the  notion 
of  crying  about  him  is  absurd. ' '  ^^ 


NOTES 


*John  Veitch,  "A  Memorial  of  Dugald  Stewart,"  in 
Collected  Works  of  Dugald  Stewa/rt  (ed.  Hamilton, 
Edinburgh,  1851-8),  vol.  x,  li-lii. 

'Sidney  Lanier,  "The  Symphony"  in  Poems  (New 
York,  1898),  p.  60. 

'John  Rae,  Life  of  Adam  Smith  (London,  1895), 
pp.  54-55. 

*"  Teaching  and  Thinking"  in  Aequanirndtas  (Phila- 
deli^hia,  1904),  p.  131. 

'  The  Education  of  Henry  Adams  ( Boston  and  New 
York,  1918),  pp.  351-352. 

•John  Craig,  Remarks  on  Some  Fundamental  Doc- 
trines in  Political  Economy  (Edinburgh,  1821),  pp. 
162-163. 

^  An  Inquiry  into  the  Nature  and  Causes  of  the 
Wealth  of  Nations  (London,  1776)  ;  ed.  Cannan  (Lon- 
don, 1904),  vol.  1,  rp.  1  note. 

^Ihid.,  vol.  1,  p.  1. 

°F.  A.  Walker,  Political  Economy  (3rd  edit.,  New 
York,  1888),  pt.  1,  chap.  iii. 

"Fred  I.  Kent,  "Foreign  Investments  in  their  rela- 
tion to  the  Future  of  this  Country";  an  address  deliv- 
ered before  the  Maryland  Bond  Buyers'  Association, 
Baltimore,  February  27,   1919. 

"James  Bonar,  Malthus  and  his  Work  (London, 
1885),  book  ii,  chap.  ii. 

115 


116  AMERICAN  CITIZENSHIP 

"Aw  Inquiry  into  the  Nature  and  Causes  of  the 
Wealth  of  Nations  (ed.  Cannan),  vol.  1,  p.  1. 

"Ralpli  Waldo  Emerson,  Journals,  1849-1855  (Cam- 
bridge, 1912),  vol.  viii,  p.  389. 

^*  Thirteenth  Census  of  the  United  States,  1910 
(Washington,  1914),  vol.  iv,  p.  53. 

"This  estimate  of  the  number  absorbed  in  specialized 
war  industries  can  claim  no  higher  warrant  than  that 
of  "  an  intelligent  guess." 

^^  The  Financial  Review,  Annual — 1918  (New  York, 
1919),  pp.  70-71. 

""Report  of  the  Secretary  of  the  Treasury,  1918" 
in  Annual  Report  on  the  State  of  the  Finances  (Wash- 
ington, 1918),  p.  4. 

" "  Letter  from  the  Secretary  of  the  Treasury  to  the 
Chairman  of  the  Committee  on  Ways  and  Means," 
Washington,  July  9,  1919. 

"  "  Report  of  the  Secretary  of  the  Treasury,"  op.  cit., 
p.  5. 

^John  Hay,  "  Banty  Jim"  in  Poetical  Works  (Bos- 
ton, 1916),  p.  13. 

^Monthly  Labor  Review,  August-October,    1919. 

'^  Bradstreet's,  September  27,   1919. 

^ "  iCirculation  Statement"  (Division  of  Loans  and 
Currency,  Treasury  Department),  May  1,  1917  and 
July  1,  1919. 

^"Abstracts  of  Reports  of  Condition  of  National 
Banks,"  No.  106  (May  1,  1917);  No.  119  (June  30, 
1919). 

^Federal  Reserve  Bulletin,  May,  1917,  p.  411-2; 
August,   1919,  pp.  796-7. 

*'See  the  present  writer's  War  Borrowing:  A  Study 
of  Treasury  Certificates  of  Indebtedness  of  the  United 


AND  ECONOMIC  WELFARE  117 

States  (New  York,  1919)  ;  also  a  paper  on  "  Fiat  Credit 
and  High  Prices,"  in  New  York  Times,  October  29,  1919. 

"War  Borrowing,  chap,  v   ('The  Price  Level'). 

'^Essays  on  Political  Economy  (ed.  Wells;  New 
York,  1877),  pp.  72-74. 

**The  argument  is  forcibly  presented  in  John  M. 
Robertson,  The  Fallacy  of  Savings   (London,  1892). 

^John  Hay,  "The  Mystery  of  Gilgal "  in  Poetical 
Works   (Boston,   1916),  p.  14. 

^  W.  M.  Thackeray,  The  Book  of  Snohs,  chap.  33. 

''George  Chalmers,  An  Estimate  of  the  Comparative 
Strength  of  Britain   (London,  1782),  p.  48. 

^No.  200;  October  19,  1711. 

**  Nassau  W.  Senior,  An  Introditctory  Lecture  on 
Political  Economy  (London,  1827),  p.  31 ;  used  again  in 
Richard  Whately,  Introductory  Lectures  on  Political 
Economy   (London,  1831),  p.  95. 

^Publications  of  American  Economic  Association, 
vol.  1   (Baltimore,  1888),  p.  10. 

*  Daniel  Raymond,  The  Elements  of  Constitutional 
Law  and  of  Political  Economy   (Baltimore,  1840),  vlii. 

II 

^John  Veitch,  "A  Memoir  of  Dugald  Stewart,"  in 
Collected  Wiorks  of  Dugald  Steuyart  (ed.  Hamilton), 
vol.  X,  Ixxiv. 

'Ibid.,  vol.  X,  Ixxii. 

'Life  and  Letters  of  Maria  Edgeworth  (ed.  Hare, 
1895),  vol.  2,  p.  65. 

*  Autobiographic  Recollections  of  George  Pryme,  Esq. 
M.A.  (Cambridge,  1870),  p.  124.  The  allusion  is  to 
Wealth  of  Nations  (ed.  Oannan),  vdl.  i,  p.  96. 


118  AMERICAN  CITIZENSHIP 

'lOarlyle,  Past  and  Present  (1843),  book  iii,  chap.  ii. 

"W.  H.  Mallock,  Labour  and  the  Popular  Welfare 
(London,  1894),  p.  308. 

'J.  Taylor  Peddie,  Economic  Reconstruction  (Lon- 
don, 1918),  p.  180. 

*  For  a  dissenting  argument  character i2:ed  by  such 
statements  as :  "  Most  employers  are  too  busy  and 
their  time  is  too  valuable  to  society  to  be  spent  on 
academic  study  of  sociological  questions.  When  the 
theorists  mix  in,  they  usually  make  a  mess  of  it " — 
see  Dorr  E.  Felt,  "  College  Made  Utopias  and  Labor 
Unrest"    (1919). 

'  The  argument  of  the  following  pages  was  presented 
by  the  writer  in  a  public  address  on  "War  and  Want," 
delivered  in  New  York  and  Rochester  in  the  winter 
of  1918. 

"  [Robert  Owen],  A  New  View  of  Society  (London, 
1813),  pp.  20-21. 

"MS.  Note  in  Place's  copy  of  Owen's  New  View  of 
Society,  in  the  present  writer's  library. 

"Quoted  by  J.  D.  Rogers  in  the  excellent  memoir  of 
Robert  Owen  in  Palgrave,  Dictionary  of  Political 
Economy. 

"  "  War  and  Want  " ;   see  note  9,  above. 

^*The  Labour  Gazette,  February,  1918,  pp.  52-53. 

"I.  M.  Rubinow,  "Dependency  Index  of  New  York 
City,  1914-1917,"  in  American  Economic  Review, 
December,  1918. 

^Monthly  Labor  Review,  March,   1919,  pp.   119-120. 

"  "  War  and  Want ;  see  note  9,  above. 

"  The  present  insistent  demand  of  the  stronger  trade 
unions  for  a  shortening  of  the  working  week  is  to  be 
interpreted    as    an    endeavor    "  to    make    the    work    go 


AND  ECONOMIC  WELFAKE  119 

round"  now  and  hereafter,  rather  than  as  a  deliberate 
limitation  of  output. 

"See  above,  pp.  26-30. 

^Monthly  Review  of  the  Bureau  of  Lalor  Statistics, 
Felruary,  1916,  p.  36. 

'^Report  on  the  Statistics  of  Labor  (Boston,  1912), 
p.  97. 

"Report  of  the  Comrmssioner  of  Lalor  (Albany, 
1914),  p.  224. 

''"See  the  present  writer's  The  Abolition  of  Poverty 
(Boston,  1914),  pp.  53-59. 

'^  An  Inquiry  into  the  Nature  and  Causes  of  The 
Wealth  of  Nations  (ed.  Cannan),  vol.  i,  p.  68. 

**lSidney  and  Beatrice  Webb,  Industrial  Democracy 
(London,  1897),  Part  iii,  chap.  i. 

*  Arnold  Bennett,  These  Twain  (New  York,  1915), 
p.  233. 

"See  J.  Noble  Stockett,  Jr.,  The  Arbitral  Determinor 
tion  of  Railway  Wages  (Boston,  1918) — the  brilliant 
essay  of  a  gifted  student  cut  off  at  the  very  threshold 
of  a  scientific  career. 

^Eastern  Engineers'  Association  (1912),  Report  of 
Board,  p.  47. 

**John  D.  Rockefeller,  Jr.,  The  Colorado  Industrial 
Plan   (1916),  pp.  13,  31. 

^'See  a  paper  by  the  present  writer  on  "Economic 
Theorizing  and  Scientific  Progress,"  presented  at  the 
Twenty-ninth  Annual  Meeting  of  the  American  Eco- 
nomic Association. 

^The  succeeding  argument  was  first  presented  by  the 
writer  in  paper  bearing  the  title  of  the  present  lecture 
('The  Laborer's  Hire')  read  before  the  Economic 
Seminary    of   The  Johns   Hopkins   University    in    1914. 


120  AMERICAN  CITIZENSHIP 

^  An  Inquiry  into  the  Nature  and  Causes  of  the 
Wealth  of  Nations  (ed.  Cannan),  vol.  1,  pp.  102-112. 

^George  E.  Barnett,  "American  Trade-Unionisin  and 
the  Standardization  of  Wages  during  the  War,"  in 
Journal  of  Political  Economy,  October,   1919. 

**Ix)uis  B.  Wehle,  "War  Labor  Policies  and  Their 
Outcome  in  Peace  "  in  Quarterly  Journal  of  Economics, 
February,  1919. 

» Alexander  M.  Bing,  "The  Work  of  the  Wage- 
Adjustment  Boards  "  in  Journal  of  Political  Economy, 
June,  1919. 

"Sidney  Lanier,  "The  Symphony"  in  Poems  (New 
York,  1898),  p.  61. 

^Carlyle's  epithet  for.  Utilitarianism;  compare 
James  Bonar,  Philosophy  and  Political  Economy  (Lon- 
don, 1893),  pp.  230  n.,  235-236. 

'^  John  D.  Rockefeller,  Jr.,  Representation  in  Industry 
(Atlantic  City,  1918),  p.  29. 

*•  Graham  Wallas,  The  Life  of  Francis  Place  (London, 
1898),  pp.  13-14. 

Ill 

*iC.  J.  Smith,  Synonyms  Discriminated  (New  York, 
1910),  suh.  "Tax." 

^  An  Inquiry  into  the  Nature  and  Causes  of  the 
Wealth  of  Nations   (ed.  Cannan),  vol.  ii,  p.  311. 

'Thomas  Cooper,  A  Manual  of  Political  Economy 
(Washington,  1833),  p.  66.  The  inspiration  was  per- 
haps Whately's  "  There  is  nothing  else  that  distin- 
guishes taxation  from  avowed  robbery  "  ( Introductory 
Lectures  on  Political  Economy,  2nd  edit.,  London,  1832, 
p.  11  n.). 


AND  ECONOMIC  WELFARE  121 

*  Edwin  R.  A.  Seligman,  Essays  in  Taxation  (8th 
edit.,  New  York,  1913),  p.  62. 

"David  A.  Wells,  Practical  Economics  (New  York, 
1887),  p.   161. 

•Edwin  R.  A.  Seligman,  The  Shifting  and  Incidence 
of  Taxation  (2nd  edit..  New  York,  1899),  p.  30. 

'David  Hume,  Essays,  Moral,  Political  and  Literary 
("Of  Taxes");  ed.  Green  and  Grose  (London,  1875), 
Y<A.  1,  p.  356. 

"David  Ricardo,  On  the  Principles  of  Political  Econ- 
omy and  Taxation   (London,  1817),  p.  189. 

^Annual  Report  of  the  Secretary  of  the  Treasury  on 
the  State  of  the  Finances  for  the  fiscal  year  ended  June 
30,  1918  (Washington,  1918),  p.  481;  "Letter  of  the 
Secretary  of  the  Treasury  to  the  Chairman  of  the  Ways 
and  Means  Committee  of  the  House  of  Representatives, 
June  5,  1918,  ibid.,  p.  47;  "Letter  of  the  Secretary  of 
the  Treasury  to  the  Chairman  of  the  Ways  and  Means 
Committee  of  the  House  of  Representatives,  July  9, 
1919"  in  Federal  Reserve  Bulletin,  August,  1919,  p. 
725 ;  "  Daily  Statement  of  the  United  States  Treasury," 
June  30,  1919. 

""Letter  of  the  Secretary  of  the  Treasury  to  banks 
and  trust  companies  of  the  United  States,  July  25, 
1919"  in  Federal  Reserve  Bulletin,  August,  1919. 

^^ Public  Finance  (London  and  New  York,  1892), 
p.  635. 

"Alexander  Pope,  Moral  Essays  (Epistle  iii;  'Of  the 
Use  of  Riches  ' ) . 

^ James  Bonar  and  J.  H.  Hollander  (ed.),  Letters  of 
David  Ricardo  to  Hutches  Trower  (Oxford,  1899),  p.  93. 

"Sir  William  Petty,  A  Treatise  of  Taxes  and  Contri- 
butions (London,  1667),  Preface. 


122  AMERICAN  CITIZENSHIP 

^  An  Inquiry  into  the  Nature  and  Causes  of  the 
Wealth  of  Nations  (ed.  Cannan),  vol.  ii,  p.  310. 

"Sir  William  Petty,  A  Treatise  of  Taxes  and  Contrir 
hutions  (London,  1667),  p.  14. 

"Byron,  The  Age  of  Bronze  (London,  1823),  lines 
602-603. 

^  An  Inquiry  into  the  Nature  and  Causes  of  the 
Wealth  of  Nations  (ed.  Cannan),  vol.  ii,  p.  310. 

^'Principles  of  Political  Economy  (London,  1848), 
book  V,  chap,  ii,  §  2. 

*  Edwin  R.  A.  Seligman,  Progressive  Taxation  in 
Theory  and  Practice  (2nd  edit.,  Princeton,  1908). 

"Ibid.,  p.  324. 

"  Principles  of  Political  Economy,  book  v,  chap,  ii,  §  2. 

^Report  of  the  Special  Tax  Commission  of  the  State 
of  New  York  (1907),  pp.  10-12;  quoted  in  Seligman, 
Progressive  Taxation,  p.  322. 

"  See  the  present  writer's  "  War  Borrounng :  A  Study 
of  Treasury  Certificates  of  Indebtedness,"  pp.  208-9; 
also  "Do  Government  Loans  Cause  Inflation?"  in  The 
Annals  of  the  American  Academy  of  Political  and 
Social  Science,  January,  1918. 

» Sir  William  Petty,  A  Treatise  of  Taxes  and  Contri- 
butions  (London,  1667),  Preface. 

*  Riciliard  Whately,  Introductory  Lectures  on  Poli- 
tical Economy  (London,  1831),  p.  92;  The  British 
Essayists  (ed.  Berguer;  London,  1823),  vol.  ix,  table 
of  contents. 

"Joseph  Massie,  A  Representation  concerning  the 
Knowledge  of  Commerce  as  a  National  Concern  (Lon- 
don, 1760),  dedication. 

*W.  Whewell,  Six  Lectures  on  Political  Economy 
(Cambridge,  1862),  viii. 

^"The  First  Edinburgh  Reviewers"  in  Works 
^Hartford,  1891),  vol.  i,  p.  22. 


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